P.O. Box 1208 , 250 Route 49 in Campton , NH 03223
phone 603-726-8642 or 603-726-8941
website www.kingrealtynh.com
The stimulus package has a revision of the first time home buyers credit/loan that you might qualify for even if you have already owned a home . Originally this was an already existing law in which a first time home buyer would receive up to $7,500 credit /loan, after closing on their home and filing for that year's income taxes . The $7,500 was credited in the first year at the time taxes were filed. However over the next 7 years you would have to pay back 70% of that . The new First time home Buyer credit is a maximum of $8,000(based on 10% of the purchase price up to $8,000) and there is no repayment requirement . However most people hearing the term first time home buyer will assuming that they do not qualify as they once owned a house. Once hearing this they often will not look further . Like other first time home buyer programs the guideline is that you can not have owned a home in the last 3 years prior to close to be considered a first time home buyer. So, if you have not owned a home in your name within the last 3 years, you are a first time home buyer. So the term, First time home buyer is somewhat deceptive. If you have not owned a home in the last 3 years, you are likely to qualify in some way for this stimulus credit . In fact you will qualify . The only caviat is for how much . After an annual income of $75,000 for singles and 150,000 for couples the amount of the credit goes down in a sliding scale . The 8,000 is also a maximum as if the purchase price is below 80,000 then the credit will be based on 10% of the purchase price. Below you will find more details and income qualifications as well as answers to many accountant kind of questions . This information came from the National Home Builders Association website . One more thing there is a deadline for which you need to close on your home in order to be eligible to receive the stimulus credit , so your action is required in a timely manner, here. But first lets talk about funding potential .
Most first time home buyers have not owned a home before because of the costs associated with purchasing a home , specifically the downpayment and closing costs. Most everyone can afford to have a home inspection. A home inspection most often run $250.00 give or take. It is the downpayment and closings costs that is the difficult number, that can run in the thousands . And you can not get to being eligible to receive the stimulus credit of up to $8,000 until after your already closed . So how do you get to the point that you can get your stimulus money without thousands of dollars already in your bank?
Well here's some good news for you those of you that have a good job and reasonably good credit but might not think right now that you have all the money it will require for a home purchase, but don't be so quick. There are a lot of first time home buyers programs(again, remember first time home buyer means you have not owned a home in your name in the last 3 years for these programs as well as for the stimulus), the typical downpayment requirement for first time homebuyer programs runs between 1-3.5 percent of the purchase price . Don't have that much in the bank, don't dispare! There are grants and bonds for which you might qualify that would bring that 1-3.5% possibly as low as a big fat ZERO. While you can not walk away from the table with money in your pocket you could walk away with a home for which you had to contribute only your good credit and a stable job history/income (and of course you have to pay the bank back with monthy mortgage payments , upkeep, taxes and insurance on your new home once you own it- we are talking the getting in here ! ) . In addition, there are many sellers who are willing to contribute your closing costs and these programs allow for the seller to pay up to 3% of the purchase price towards your closing costs(in most cases - this will be most if not all of your closing costs).
Unlike what you have heard the local banks have plenty of money to lend to qualified buyers as do many of the national mortgage companies. Your credit scores, your income and the income guidlines for each program will determine just how much you might have to pay if any upfront money to be in your new home. More good news is this, if you prequalify with a knowledgeable First Time Home Buyer loan officer he or she will fit you to the package that is just right for you. Fitting you into the right program will take into account what you have saved as well as what you make and federal and state guidelines for income for each program. This prequalification should costs you absolutely nothing except your time to sit down with them and get the necessary paperwork for them to prequalify you( with the exception of a small fee to check your credit). Further you have not committed to anything until they have given you a number as to what you can afford and what you will need if anything for closing costs and or downpayment ; your have gone out and found your house that you want to purchase and are ready to make the move. Only then will you be required to make a committment to this lender. Once your loan officer has prequalified you you will know very close to exactly how much you will need to close if anything and exactly what you can afford. And up to and including that point you should not have to give that loan officer anything except your time and possibly a small fee to check your credit . If you do not qualify for a loan or the loans they offer to you do not meet your comfortable zone , you owe them nothing and you walk away . But if you dont take the time to do this, you are not going to get there anyway , so what do you have to lose?
Here are some of the programs you might qualify for :
FHA loans requirement is 3.5% down for your downpayment . FHA loans are not just for first time home buyers in fact almost any qualified buyer who meets the guidelines can get an FHA loan . But the rest of the information here is molded to the firs ttime home buyer . Typical closing costs run 3% of the purchase price . So you will likely need 6.5% to move in . Not so quick, I did not say you had to have all that money yourself. Many sellers will contribute the 3% for your closing costs as an incentive and FHA programs allow it. If your loan officer is good at what they do, he or she will know the programs out there, and will be able to find the right program or to pair the most appropriate programs together for you, to suit your needs . FHA program for first time home buyers can often be paired with grant money (there are some income guidelines here, so while you might qualify for FHA you might not always qualify also for the grants ) that will allow you to receive a grant for up to 4% of the purchase price. With a downpayment requirement of 3.5% and seller paid closing costs you could possibly get in there with no money down . Not everyone that qualifies for an FHA loan will also qualify for the grants so please talk with a lender before getting your heart set on a home and being disappointed .
There is also the option that if you do not qualify for the grants and you have a family member willing to give you a gift of the 3.5% or any portion there of , of your downpayment - this is also allowed. The guidelines allow a family member to gift a first time home buyer with up to 3.5 percent of their downpayment . There can not be an obligation on the part of the home buyer to repay that gift to the giver or this will not qualify. Further unlike the buyer, the gifter will not have to prove where they got the funds so the gifter could have taken a loan to get the funds . The only requirement is that they will need to be able to prove they have the funds .The Seller can not contribute anything to your downpayment but they can still contribute up to 3% of the purchase price towards your closing costs.
NH Finance requirements 1% downpayment and the same typical closing costs as FHA. NH Finance can be paired with Rural Housing and the grant money as noted above and with or without Seller paid closing costs , you might get in with little or no money if you qualify for this . This program has maximum income limitations based on county , need and family size.
Rural housing is 100% financing and the same typical closing costs. If the seller of the home you are purchasing is willing to pay the allowable or a portion of the allowable closing costs you could be in for little or no money . This program will require classroom time and will have income and credit limitations depending on if Rural housing is contributing to the funding or 100% the funding. It is also dependent on what county the property is located in
VA Financing is 100% financing and with the same typical closing costs . If you purchase a home where the seller is willing to pay part or all of the allowable moeny for your closing costs you could get in with no or little money down
All of the above programs will allow your seller to pay up to 3% of the purchase price towards your closing costs and if you are eligible for them you are most likely eligible for the 8,000 tax credit for first time home buyers in the Stimulus package (or at least a sliding scale amount of it). The local banks, credit unions and many of the national lenders have plenty of money to lend . And they will take the time to work with you to know what program that best suits you . If you qualify to be a first time home buyer ( you have relatively good credit and a steady job history with good income ), you will never find a housing market that will afford you as much home for the money as you will find in todays market . And while you might find a better interest rate offered to people with 20 or more % down, the interest rates offered today are at an all time low . Not everyone will qualify but if youve always wanted to buy a home what do you have to lose to take the time to meet with a lender and find out ?
King Realty has talked with our sellers. Many have agreed with full price offers, to pay all or a portion of the buyers closing cost as noted in each listing. Please check each listing as not all of our sellers have agreed . If you are in the market to buy . Take the time to go through all of our listings and find the ones that might be right for you .
Here are the details from the website of the National Association of Home Builders on qualifications for the Stimulus First time home Buyers Credit . Questions and answers that might be helpful. One should always take the time to verify all information that might be applicable to them with their accountant and their lender before getting into any binding contract .
Who is eligible to claim the tax credit?
First-time home buyers purchasing any kind of home-new or resale-are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.
- What is the definition of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.
For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
- How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $8,000.
- Are there any income limits for claiming the tax credit?
The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
- What is "modified adjusted gross income"?
Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.
To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.
- If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.
- Can you give me an example of how the partial tax credit is determined?
Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.
Here's another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer's income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.
Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.
- How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.
- How do I claim the tax credit? Do I need to complete a form or application?
Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests.
- What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.
- I read that the tax credit is "refundable." What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.
For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).
- I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?
Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.
- Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.
In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.
- Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.
- I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?
No. You can claim only one.
- I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.
- Is a tax credit the same as a tax deduction?
No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.
A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer's tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.
- I bought a home in 2008. Do I qualify for this credit?
No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.
- Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?
Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.
Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.
Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.
- If I'm qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.
Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.
- For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount
If you have questions on how this may relate to you that are not answered here check with an accountant or your lender.
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