A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual's primary residence.
How Much are First-Time Homebuyers (FTHB) Eligible to Receive?
An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.
Who is Eligible fort FTHB Tax Credit?
Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.
This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.
As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.
How Much are Current Home Owners Eligible to Receive?
The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.
Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?
No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.
Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?
Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.
According to the IRS, factors that would demonstrate the ownership of the property would include:
1. Right of possession, 2. Right to obtain legal title upon full payment of the purchase price, 3. Right to construct improvements, 4. Obligation to pay property taxes, 5. Risk of loss, 6. Responsibility to insure the property, and 7. Duty to maintain the property.
Are There Other Restrictions to Taking the FTHB Credit?
Yes. According to the IRS, if any of the following describe a homebuyer's situation, a credit would not be due:
They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from "step-relatives.")
They do not use the home as your principal residence.
They sell their home before the end of the year.
They are a nonresident alien.
They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.
Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?
Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.
If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?
Yes, provided that the child meets the other requirements for the tax credit.
The three Cs of underwriting are credit reputation, capacity, and collateral.
Credit reputation is basically your credit history, including past foreclosures, bankruptcies, judgments, and basically measures your willingness to pay your debts. These items will be reflected in your FICO credit score, which may halt furhter underwriting if you fall below a certain threshold.
Capacity deals with a borrower's actual ability to repay a loan, using things like debt-to-income ratio, salary, cash reserves, loan product and more. The underwriter wants to know that you can repay the mortgage you're applying for before granting approval.
Collateral deals with the borrower's down payment, property type, and property use, as the lender will be stuck with the home if the borrower fails to make timely payments.
All three must be considered simultaneously to understand the level of layered risk that could be present in said application. The underwriter must decide, based on all the criteria, if the borrower is an acceptable risk for the lender, and if the end product can be resold without difficulty to investors.
You are replacing your old loan with an entirely new one with different interest rate and terms. Your new mortgage may come from the same lender or another. Since the new loan pays off your old mortgage it doesnt much matter whether you change lenders in a refinance.
Most borrowers choose to refinance their mortgage to take advantage of lower interest rates, consolidate higher (non-deductible) interest rate debt, or to cash out equity in their home.
A rate and term refinance trades in your old mortgage(s) without raising the loan amount. You may be permitted to see some (minimal) cash at close. Usually the lesser of two percent (2%) of the new mortgage amount or $2,000.
When consolodating mortgage loans (1st, 2nd etc..), they must have been originated at the same time to qualify for a rate & term refinance. If not, you may be able to exclude other mortgage loans to perform a rate & term refinance on your 1st mortgage loan alone.
A cash-out refinance allows homeowners to tap the equity in their homes, (property value minus all mortgage liens) and the amount is limited only by the lenders maximum loan to value (LTV) caps for this program. Because the new loan size is greater than before, lenders consider it higher risk and generaly charge higher rates for this loan type.
Consolodating higher interest 2nd loans & variable rate home equity lines may still make sense as most 2nd loans have even higher rates reflecting the higher risk 2nd lien position represents to the lenders. I recommend my clients consider opening a new home equity line with their new 1st mortgage so they may be eligable to consolodate it as a rate & term refinance if needed later.
Mortgage companies continue to foreclose on American homes at an alarming rate. The real estate market boomed in the late 1990's and early 2000's. Property values soared and homeowners cashed in on their new found home equity. However, interest rates have climbed, the real estate market has cooled and homeowners realize it's a buyer's market. Some homes will sit on the market for six, nine or twelve months. The asking price goes down and homeowners inch closer to the edge of foreclosure.
Many consumers do not understand that the bankruptcy code can help them save their homes from mortgage foreclosure. Chapter 13 bankruptcy is a very powerful tool that can save your home if you have fallen behind on your mortgage payments and you want to rescue your home from mortgage foreclosure.
What is a Mortgage Foreclosure:
Foreclosure is the legal proceeding in which a bank or mortgage company takes title to real estate due to the homeowner's failure to make the agreed mortgage payments.
The downward spiral into foreclosure begins when your loan payment becomes 16 days overdue. At that point, your mortgage lender may try to contact you to work out a repayment schedule to bring your loan current. If your payments fall 90 days behind, the mortgage company will likely refer your mortgage to an attorney that will start formal foreclosure proceedings.
Chapter 13 Bankruptcy Stops Foreclosure:
Chapter 13 bankruptcy is designed to stop foreclosure. In fact, stopping mortgage foreclosures is the driving force behind many Chapter 13 bankruptcies. As soon as you file Chapter 13 bankruptcy an "automatic stay" goes into effect. This "stay" stops your mortgage company from continuing to foreclose on your home. Your mortgage company cannot contact you in regard to your pre-filing mortgage arrears (the amount you are behind on the mortgage) while you are in the Chapter 13 bankruptcy.
How Does Chapter 13 Bankruptcy Work:
Once you prepare a Chapter 13 plan with your attorney, you will file a Chapter 13 petition for relief and the foreclosure proceeding will stop. The bankruptcy trustee will then recommend your Chapter 13 plan for confirmation and the bankruptcy court will approve a repayment plan that allows you to get current on your mortgage over a three to five year period. You must make all current mortgage payments that come due after the Chapter 13 bankruptcy petition is filed.
Homeowners must make all mortgage payments that come due during the Chapter 13 plan. If you fail to make your post-filing mortgage payments the mortgage company can ask the bankruptcy court to lift the protection of the automatic stay and the mortgage company can resume the foreclosure proceeding if the judge agrees with the mortgage company. The possibility of refinancing your mortgage after you have gotten back on track with your Chapter 13 plan is a real possibility for many consumers
When Should You File Chapter 13 Bankruptcy to Stop a Mortgage Foreclosure:
Generally, the Chapter 13 bankruptcy must be filed before the mortgage company sells your home. However, if you find yourself behind on your mortgage payments you ought to call an experienced attorney to explore all of your options before the situation spins out of control. The Chapter 13 bankruptcy filing gives homeowners the time they need to catch up on their mortgage payments.
Who Can File Chapter 13 Bankruptcy:
You can file a chapter 13 bankruptcy to stop a mortgage foreclosure, provided you:
Are employed or have a steady source of income;
Have enough income to make your Chapter 13 plan payments, and your current mortgage payments after the chapter 13 is filed.
Chapter 13 plan payments are fixed so that you can meet all your living expenses first and then pay any surplus income to creditors.
Chapter 7 and Mortgage Foreclosure
Chapter 7 bankruptcy is a liquidation bankruptcy. A Chapter 7 will typically eliminate:
credit card debt;
installment loans;
pay day loans;
medical bills, and most other unsecured debt.
In most cases consumers will keep all of their property. If you are facing foreclosure on your home, the automatic stay created by your Chapter 7 filing serves as a temporary defense against foreclosure. As opposed to Chapter 13 bankruptcy, Chapter 7 will give you a fresh start, but will not provide you with the opportunity to catch up with your mortgage payments.
However, Chapter 7 bankruptcy will allow you to discharge, or eliminate, any deficiency balance owed to your mortgage company if your home is sold for less than the outstanding balance owed to the mortgage company.
The Difference Between Chapter 13 and Chapter 7 Bankruptcy?
The biggest difference is that a Chapter 7 bankruptcy does not provide for the repayment of any debt. Chapter 7 cannot stop a mortgage company from foreclosing on property. Chapter 7 will temporarily delay the foreclosure proceeding, but it cannot provide the long-term protection of Chapter 13 because no plan to repay the mortgage delinquency is proposed.
Yes. While it's true that most of the popular no-down payment programs disappeared in the wake of the subprime mortgage collapse, there are still two longstanding government-backed programs that offer mortgages with no down payment: the USDA Rural Development Program and the VA Loan Program.
A USDA Guaranteed Loan is a government-insured, 100% purchase loan. This means there is no down payment required if you - and the house you intend to buy - qualify for the program. Not all areas qualify, but you'd be surprised at how many neighborhoods in your area do. There are income and other limitations, but if coming up with a down payment is challenging, you might want to consider this program.
If you or your spouse is a military veteran, you may qualify for a 100% financed loan from the US Department of Veterans Affairs. More than 29 million veterans and service personnel qualify for this service benefit. Give us a call to find out if you're one of them.
Q. Are there any other government-insured programs that can help someone struggling with a down payment?
Yes. In 1965, the federal government created the FHA loan programs to encourage homeownership throughout the country. FHA-insured mortgages offer many benefits, including a minimum down payment of 3.5%. FHA-insured loans have grown in popularity recently due to the seller's ability to pay closing costs up to 6% and a temporary increase in loan limits up to $729,750 in certain high-cost areas, which allows more potential buyers to utilize this program.
Q. May I use a gift from family members as part of my down payment?
Yes. In many cases, immediate family can provide monetary gifts to be used as a down payment. There are restrictions of course, and strict documentation will be required, but we will gladly walk you through the finer details of this process. Be sure to mention this option when you're filling out an application with us.
Q. May I use funds from my IRA for my down payment?
Yes. First-time home buyers can use funds from an IRA under certain circumstances for a down payment. The rules regarding this option, however, can be complicated, especially with a Roth IRA, and it's important to understand any and all tax implications before tapping into these accounts. Please talk to your tax professional before making any decisions. If you don't have one, we'll gladly refer you to one we work with on a regular basis.
Q. May I use the $8,000 tax credit as my down payment?
No. At the time of the writing of this article, qualified first-time home buyers do not have direct access to the $8,000 credit to use as a down payment. In May, HUD officials made an announcement to the contrary, but statements backing the announcement were quickly withdrawn from the HUD website. This doesn't mean that HUD and lawmakers will not allow this in the future. We're following this issue closely and will let you know if anything changes. Just keep reading our newsletters and other materials we send to you or give us a call and we'll let you know if any progress has been made.
The FHA appeard to be allowing homebuyers to use income tax credits for their entire 3.5% down payment but concerns this too closely resembled seller paid down payment assistance cause them to re-define this program.
Borrowers applying for an FHA loan will still be required to come up with a minimum 3.5 percent down payment, but will be able to use the tax credit for additional down payment or for other closing costs.
"Unlike seller-funded down-payment assistance, this program will allow homebuyers to shop for the best home price and services using their anticipated tax credit," HUD Secretary Shaun Donovan said in a statement.
Note: Consider using this as an alternative when seller are unwilling to pay closing costs for their buyers like short sales & REO's.
Heidi is a bar owner. She realizes that virtually all of her customers are unemployed alcoholics and can no longer afford to patronize her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now & pay later. She keeps track of the drinks consumed on a ledger tab, thereby granting customers loans.
Word gets around about Heidi's "drink now pay later" no income loan programs and huge numbers of customers flood into Heidi's bar. Soon she has the largest sales volume for any bar in town!
By providing her customer's deferred payments Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Heidi's gross sales volume increases hugely!
A young and ambitious vice-president at the local bank lables Heidi's customer debts valuable future assets and increases Heidi's borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.
At the bank's corporate headquarters, expert traders mix these loans with those of employed alcoholics and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These new securities are bundled and traded on international security markets. Naive investors don't really understand that the securities they think are AAA secured bonds are really mixed in with the debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.
One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the unemployed drinkers at Heidi's bar but they cannot pay back their drinking debts. Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.
Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in value by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.
The suppliers of Heidi's bar had granted her generous payment extensions and had invested their firms pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of their bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, Her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.
Fortunately though, the bank, the brokerage houses and their respective executives are bailed out by a multi-billion dollar no-strings attached cash infusion from the Government.
The funds required for this bailout are obtained by new taxes levied mainly on employed, middle-class, non-drinkers.
The Treasury today announced details of the "Second Lien Program," which will work in tandem with the existing Home Affordable Modification Program to ensure more borrowers receive the assistance they need.
"Up to 50 percent of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien," the Treasury said in a statement.
"Under the Second Lien Program, when a Home Affordable Modification is initiated on a first lien, servicers participating in the Second Lien Program will automatically reduce payments on the associated second lien according to a pre-set protocol."
Alternatively, loan servicers can extinguish the second mortgage in return for a lump sum payment under a pre-set formula determined by the Treasury, which could be as little as three cents on the dollar.
For fully amortizing loans, Treasury will share the cost of reducing the interest rate on the second mortgage to one percent (down to 2 percent for interest-only loans) and extend the term to match the modified first mortgage.
Participating servicers will also forbear principal in the same proportion as any principal forbearance on the first mortgage, and after five years, the interest rate on the second mortgage will rise to the rate on the modified first.
The Second Lien Program will have a pay-for-success structure similar to the first lien modification program, offering $500 in upfront payments to servicers, and $250 per year for three years if borrowers stay current.
Borrowers will also receive "success payments" of up to $250 per year for as many as five years, which will go towards the principal balance on the first mortgage so long as they stay on top of payments.
In an effort to help more underwater borrowers, the Hope for Homeowners program will now be included in the Making Home Affordable Program.
Loan servicers will be required to evaluate if a borrower qualifies for a Hope for Homeowners refinance and must extend the option at the same time a borrower is offered a trial loan modification.
In return, servicers can receive up to $2,500 as an upfront incentive payment for a successful refi and $1,000 per year for up to three years if the loan remains current.
The Hope for Homeowners program has allegedly only helped a single borrower to date, prompting officials to make big changes to entice servicers to get onboard.
Congress has enacted legislation providing a tax credit of up to $8,000 for first-time home buyers in its efforts to stimulate the economy and revive the housing market,
Time is of the essence for buyers who want to take advantage of this opportunity. Only homes purchased on or after January 1, 2009 and before December 1, 2009 are eligible. Use this link below to find out more about the tax credit.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
;)
;)
