Bridgewater, NJ

NAR Frequently Asked Questions

Homebuyer Tax Credit Changes
National Association of REALTORS® Government Affairs Division
500 New Jersey Avenue, NW, Washington DC, 20001

Here are some of the most frequently asked questions on the changes to the Homebuyer Tax Credit

Question: Existing homeowner credit: Must the new house cost more than the old house?

Answer: No. Thus, for example, individuals who move from a high cost area to a lower cost area who
meet all eligibility requirements will qualify for the $6500 credit.

Question: I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a
new home. I have lived in my current home for more than 5 consecutive years and
am within the new income limits. I will go to settlement on November 20. If
President Obama has signed the bill by the time I go to settlement, will I qualify for
the new $6500 tax credit?

Answer: Yes. The existing homeowner credit goes into effect for purchases after the date of enactment
(when the bill is signed). There is no reference to the date of contract for the new credit. The
provision looks solely to the date of purchase, which is generally the date of settlement.

Question: I am a firsttime
homebuyer but was not within the prior income limits at the time I
entered into my contract to purchase on October 30, 2009. I will be covered,
however, by the new income limits. If the new rules have been signed into law by the
time I go to settlement, will I be eligible for a credit?

Answer: Yes. The new income limitations go into effect as soon as the President has signed the bill.
The income limit and other eligibility rules will look to your status as of the date of purchase,
which is the settlement date. So if the new rules have been signed when you go to settlement,
you should be eligible for the credit (or a portion of the credit if you're within the phaseout
range).

Question: I am an eligible existing homeowner. I have a fair amount of equity in my home. I
have found a home with a nonnegotiable
price of $825,000. Will I be able to use any
of the $6500 tax credit?

Answer: No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount
above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an
absolute ceiling.

Question: I owned my home for 10 years, but sold it two years ago year and have been renting
since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the
other eligibility tests?

Answer: Yes. Because you lived in the home for more than 5 consecutive years of the previous 8, you
will qualify for the $6500 credit. For example, Say John and his wife bought a home in 2000
and lived there until 2008 when he got a divorce. Whether John has been renting or bought in
the interim, he WOULD INDEED be eligible for the credit because he owned a home and
occupied it as his principal residence for 5 consecutive years out of the last 8 years. The
keyword here is "consecutive." As long as he lived in that house for 5 years straight what he
did since 3 years doesn't impact eligibility.

Question: I am an eligible firsttime
homebuyer. I entered into a contract to purchase on
November 1, 2009. Do I have to go to closing before December 1? How does the
extension date affect me?

Answer: You do not have to close before December 1. Once the legislation has been signed, it will be as
if the Nov 30 date had never existed. Therefore, so long as the contract settles before April 30
(or July 1, worst case), the purchaser will be eligible for the credit

Bridgewater Mortgage programs abound: jumbo financing remains available to qualified borrowers to purchase a house and to do rate, term and cash-out refinancing for loan amounts of more than 729k. Fannie Mae has raised loan limits for Bridgewater Mortgage programs up to $729k, and the FHA Loan Limit is $729,750 as well. USDA Rural Development loans are avilable in some areas around Bridgewater as well. Great rates are available for all types of loans in your area, contact me at 908 531 6170 for a customized quote. As an area resident, here are some tips (as well as questions to ask a prospective lender regarding their loan parameters) to help you qualify for a loan as well as documentation required to get to closing on a Bridgewater Mortgage loan in a timely fashion:

•1. Review your credit rating. Jumbo loans now often want a minimum 680, 700, or even a 720, or higher credit score. A 620 credit score is the minimum for FHA and VA mortgage loans currently. Fannie Mae mortgage loans have credit adjustments for credit scores starting at scores under 740. You can ask your Bridgewater Mortgage loan officer to review your credit report with you or go to a free credit reporting service to review a copy of your credit report. You will want to check your credit for errors and any late payments, high balances, or loans for which you have co-signed (like student loans). For more information, contact a reputable loan officer. Ask your lender what their credit score policy is for your particular loan.

•2. Check your home's value. Nothing is more disappointing than someone's home not appraising for enough to qualify for a refinance or purchase, particularly when the borrower feels the value should be higher. For the record, the borrower always feels the value should be higher. Zillow or other related online valuation websites are an OK place to start, and you also may want to consult a real estate professional if you are refinancing to gauge the market trends in your area. Local papers often list recent sales prices and addresses as well. I strongly urge anyone buying a home to use a buyer's agent to represent them for their purchase. As a Bridgewater Mortgage professional, I can happily refer you to a reputable real estate agent in your area, who will look out for your interests.

•3. Check your income. A jumbo Bridgewater Mortgage loan may not include bonus income at all, or may require a low loan-to value (usually under 75%) to include bonus income. If you are self employed or have a small side business, review your actual claimed income or loss. Lenders now check with the IRS for what your total claimed income is prior to closing a loan, via a form 4506. If you have W-2 income but substantial business losses, this could present an issue on a fully documented loan. Check with your lender beforehand and present 2 years worth of SIGNED tax returns. Presenting a signed return verifies that it is indeed what you filed with the IRS.

•4. Review your asset "reserves." While some lenders do not even verify asset reserves for jumbo loans, most want to see some money left over in savings after closing. A lender wants to see PITI reserves, or a certain number of months total mortgage payments, in savings. These reserves can be in the form of an IRA, 401k, stocks, checking, savings, etc. Bridgewater Mortgage lenders want to see 2 months of ALL PAGES of asset accounts. Accounts such as an IRA or 401k are usually counted as 60-70% of their face value towards reserves due to withdrawal and tax penalties/liabilities, if applicable. Many lenders require 6-24 months or more PITI reserves, depending on the loan's size

•5. Decide what type of loan you want. 40, 30, 20, and 15-year fixed loans have different rates and payments. If you plan on staying in your home less than 10 years, you may want to entertain an adjustable rate mortgage for a lower interest rate. An interest-only loan may be attractive if you plan on making lump sum payments, or simply want to make minimal payments. Interest-Only and Adjustable Rate Mortgages are not for everyone, as we have learned over the last few years. Learn how an ARM Mortgage works. Get ARM details in writing from your lender.

Have your documentation ready. Your Bridgewater Mortgage lender isn't singling you out if they ask (in addition to income/asset information) for a recent phone bill with your address and phone number, a copy of a legible drivers license, homeowners insurance declaration page, credit inquiry letter, and even a credit explanation letter. This is standard now for documenting a loan file.

According to researchers of the Financial Trust Index (University of Chicago and Northwestern University) 81% of homeowners interviewed agreed with the statement that "it is morally wrong to walk away from a house when one can afford to pay the monthly mortgage."

	New Jersey Estates/ Real Estate Group Paul Stillwaggon September 2009 LINKING THE LATEST TECHNOLOGY TO OLD FASHIONED SERVICE Copyright © 2009 Realty Times All Rights Reserved

Are these survey respondents correct? Is it really morally wrong to intentionally default on a mortgage debt? And, if it is, is it what we might call a grave or really serious moral wrong, or might it better be classified along with "white lies" and other "technically wrong" behaviors that many would think do not reflect a serious defect of character? To lean on some classic Roman Catholic distinctions, might "walking away" be more of a venial sin than a mortal one?

An examination of these questions is not simply an idle academic exercise. The Financial Trust Index research estimates that 26% of present foreclosures are "strategic". A strategic foreclosure occurs when the borrower is able to make the payments, but simply chooses not to. Moral considerations play a major role in preventing strategic defaults.

Of course, moral considerations are not the only ones that play a role in deterring strategic defaults. There are also credit, and sometimes tax, issues as well. Nonetheless, the moral component has been shown to be an important one.

Depending on whose statistics you believe, somewhere around 20% of homeowners in the United States are "under water". That is to say, they owe more on their mortgage than their home is worth. Many of these are candidates for strategic default. Moreover, Deutsche Bank recently released an analysis predicting that about 48% of homeowners would be under water by the first quarter of 2011. Lots more candidates.

Why shouldn't one voluntarily default on a mortgage that substantially exceeds the value of the home? Why throw "good money after bad"? Wouldn't walking away represent a prudent allocation of available assets? Without a doubt, doing so will entail a cost in terms of available credit. But this may well not be determinative.

What about the moral constraint? Is it really wrong - or how wrong is it - to voluntarily default on a mortgage?

Before addressing this question directly, it would be appropriate to mention at least two points of view. One is that something is wrong if, and only if, you feel that is wrong. Essentially, you cannot be wrong about your moral evaluations. Another is that all wrongs are equally wrong. There are no gradations. If a person holds either of these views, there is probably nothing more to say.

Having noted these minority exceptions, let us address the majority.

Among those who were surveyed, the immorality (or the seriousness of it) of walking away from a mortgage loan had a lot to do with the circumstances. If a home were only (only!) $20,000 under water, only 7% of those who thought it morally wrong would walk away. But the percentages increased as the negative equity increased. 37% of those who thought that voluntary default would be morally wrong would, nonetheless, walk away from a home that was $200,000 upside down.

Does this show moral weakness, or does it show moral sense? Those with a moral sense know that, on the face of it, it is morally wrong to break one's promise. But conditions, most would agree, have a bearing on that judgment. Promise-keeping is not the highest moral value. If I promised to lend you my gun, and you are now in a clearly dangerous psychotic stage, breaking my promise would be the right thing to do, not a wrong.

Here, the duty to keep a promise is outweighed by the duty not to put others - perhaps even one's self - in preventable danger.

Analogous thinking provides moral justification, in some cases at least, for strategic default. While a person may have a moral obligation to keep his or her promise to pay, other considerations - moral considerations - can outweigh the obligation. Maintaining the overall welfare of one's family is a duty that would have a higher moral priority.

Beyond the observation that promise-keeping is not the highest moral value, it is also important to remember that a mortgage note is not like a typical promise. To be sure, almost all notes contain the phrase "I promise to pay..." Still, with a mortgage, the borrower and the bank make a deal. The deal is: "if I don't pay, you can have the property."

Mortgages are secured notes. They are not like borrowing from your grandmother. If you willingly default to her, shame on you. She has no recourse. But, if you default to the bank, they can take your property. That is the deal they made. The property may not be worth what they lent you, but whose fault is that? They are big boys and girls. They made a business decision, and in today's market, they lost. (No wonder that so many appraisals are now coming in under current market value.)

Moral considerations are one of the chief barriers to strategic defaults. They probably exert more weight than they should. The lender made a deal. If you don't pay, he gets the property. So now, in 2009, he gets the property; and he doesn't like it. That is regrettable; but a deal is a deal.


Written by Bob Hunt
September 29, 2009

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A tax credit of up to $8,000 is available for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.

http://mortgagewell.blogspot.com/2009/06/first-time-home-buyer-tax-credit.html

Just posted to my blog: "100 Great Tips For Saving Money For Those Just Getting Started "

This article has a great collection of simple ideas that can add up to make an important difference in your financial life.

Here: http://mortgagewell.blogspot.com

The collection is written by Trent Hamm, author of the book "365 Ways to Live Cheap"

Here: http://www.amazon.com/gp/product/1605500429?ie=UTF8&tag=14111718-20