Buyers who use FHA financing soon will be able to use their $8,000 tax credits for settlement fees, escrow charges, higher down payments or to “buy down” the interest rate.

The Obama administration has put out the official word: Starting soon, first-time home buyers nationwide will be able to turn their $8,000 federal tax credits into cash for use at closing if they use Federal Housing Administration mortgage financing.

But in its final guidelines to lenders and buyers issued May 29, the Department of Housing and Urban Development clarified that buyers obtaining FHA loans through private lenders would have to invest at least some of their own funds — whether from personal savings or gifts from relatives — in the form of a minimum 3.5% down payment.

In other words, you’ll need equity in the house to participate. This won’t be a zero-down plan, with one exception: If you obtain your FHA loan through one of about 10 state housing agency “tax credit monetization” programs, you’ll be allowed to pay for your entire down payment with the help of a bridge loan provided by the agency.

Those bridge loans generally are low-interest or no-interest short-term second liens secured by the property, and convert into second mortgages if they are not paid off with the proceeds of the tax credit.

For FHA lender-supplied cash advances, you’ll be able to use the $8,000 tax credit — or whatever-size credit you qualify to receive — for settlement fees, escrow charges, higher down payments or to “buy down” your interest rate to cut monthly payments.
How will this all work in practical terms? How do you apply? Here’s a quick guide:

To start, you’ll need to qualify as a first-time buyer under the generous definition permitted by Congress — that is, you cannot have owned a principal residence during the previous three years, and your household gross income cannot exceed $95,000 for single taxpayers or $170,000 for married couples filing jointly.

To get the process rolling, you’ll have to write a contract on a house you can afford to buy and apply for a mortgage through an FHA-approved lender. There are more than 12,000 lenders with that designation. Large banks or bank-affiliated mortgage lenders are more likely to be geared up for the program in the near future, according to industry experts. Home builders, who have advocated credit-monetization programs for months, are likely to be major participants. The tax credit program requires all eligible purchases be closed no later than Nov. 30.

Besides the usual mortgage application information, the lender is likely to require some extra paperwork, based on FHA guidelines:

* A filled-out IRS Form 5405, which is your request to the federal government to send you a tax credit check. You can file an amendment to your 2008 return and get the credit within a matter of weeks, or you can file for it on your 2009 taxes. Most buyers are expected to opt for the amended return route. Form 5405 is available for download at www.irs.gov.

* Proof that you have no outstanding judgments, liens, unpaid taxes or other obligations that could reduce or eliminate the tax credit you’re seeking.

* Confirmation from your employer that you are not subject to wage garnishments, which could also affect the amount of the credit.

Your lender will be strictly limited on what it can charge for providing you tax credit money in advance. According to FHA guidelines, fees must be reasonable and nominal — generally no more than 2.5% of the expected tax credit. For example, if you’re in line to receive the full $8,000 credit, that would mean the most you could be charged for the cash in advance typically would be $200.

A senior HUD official said that the agency wanted to keep these fees as low as feasible to avoid abuses or gouging, and that HUD would be monitoring transactions to make sure participating lenders were adhering to the guidelines.Similar Posts:

• First Time Home Buyer Programs: Santa Clara
• Should I Buy a Short Sale in the Santa Clara Valley?
• First Time Home Buyer Tax Credit
• New California Homebuyer Tax Credit for 2010
• Short Sale FAQ

The Housing and Economic Recovery Act of 2008 authorizes a $7,500 tax credit for qualified first-time home buyers purchasing homes on or after April 9, 2008 and before January 1, 2009. The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

1. Who is eligible to claim the $7,500 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 April 9, 2008 and before January 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs.

2. 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.

3. Are there any income limits for claiming the tax credit?

Yes. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. 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 phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with a MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

4. 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. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.

5. What types of homes will qualify for the tax credit?

Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.

6. Instead of buying a new home from a home builder, I have 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 April 9, 2008 and before January 1, 2009.

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

7. 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.

8. 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 $7,500 are available for some taxpayers whose MAGI exceeds the phaseout limits. The credit becomes totally unavailable for individual taxpayers with a modified adjusted gross income of more than $95,000 and for married taxpayers filing joint returns with an AGI of more than $170,000.

9. 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 the phaseout range of $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 $7,500 by 0.5. The result is $3,750.

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 the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $7,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,625.
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.

10. Does the credit amount differ based on tax filing status?

No. The credit is in general equal to $7,500 for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as “married filing separately” (in effect, filing two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.

11. Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?

In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500. For most first-time home buyers, this means the credit will equal $7,500. For home buyers purchasing a home priced less than $75,000, the credit will equal 10% of the purchase price.

12. I heard 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 taxpayer qualified for the $7,500 home buyer tax credit. As a result, the taxpayer would receive a check for $6,500 ($7,500 minus the $1,000 owed).

13. What is the difference between a tax credit and a tax deduction?

A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 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 $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer’s tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.

14. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program

No. The tax credit cannot be combined with the MRB home buyer program.

15. I live in California . Can I claim both the California Home Buyer Tax Credit and this new credit?

Yes, you can claim both.  One is for federal the other is for state income taxes.

16. 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.

17. Does the credit have to be paid back to the government? If so, what are the payback provisions?

Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

18. Why must the money be repaid?

Congress’s intent was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first-time home buyers, this will maximize the stimulus for the housing market and the economy, will help stabilize home prices, and will increase home sales. The repayment requirement reduces the effect on the Federal Treasury and assumes that home buyers will benefit from stabilized and, eventually, increasing future housing prices.

19. Because the money must be repaid, isn’t the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?

Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%, that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability in the year it is claimed.Similar Posts:

• Economic Stimulus and Tax Credit
• New California Homebuyer Tax Credit for 2010
• First Time Home Buyer Programs: Santa Clara
• FHA Home buyers’ tax credit can be turned into cash at closing
• How the California NEW HOME Tax credit Affects the Santa Clara Valley

California announced it’s own, $10,000 tax credit for any homeowner buying a new home between March 1, 2009 and March 1, 2010 regardless of whether they’re a first-time buyer or not. This comes on top of the federal first-time home buyer tax credit of $8,000 announced by the Obama administration as part of the federal stimulus package. Unlike the federal bill the California home buyer tax credit does not have restrictions on income qualifications, nor do you need to be a first time buyer to participate. The only restriction is that the home be new construction and be purchased between March 2009 and March 2010.  

While it is still unclear exactly how the California Home Buyer Tax Credit program will work, here is what we do know:

• Eligible on NEW homes purchased between March 1, 2009 and March 1, 2010 (must be new construction to qualify)
• $10,000 credit paid in 3 annual installments of $3,333.  Home buyers get the $3,333 off their taxes for the first three years after purchasing the new home.
• No income restrictions, meaning that all home prices and incomes can participate.
• Any home buyer buying a new home qualifies.  You do not have to be a first-time buyer as in the Federal Home Buyer Tax Credit.
• Pending escrows or recent home sales have not been determined to be eligible at this point, although it will be determined shortly.
• The total credit is $100 million (h/t CR) which works out to 10,000 home sales that would qualify under the California Home Buyer Tax Credit program.

Politics aside, this seems like a bad idea for Santa Clara Valley.   We have a fundamental problem of high supply and low demand in Santa Clara Valley, a very high proportion of which are older homes.  This may take away buyers from those older homes and pursuade them to buy into new developments that should never have come to be.

From all the new developments out there: Summerhill – Village Square, Shea Builders – Mondrian, Shea Builders – Boulevard, Toll Brothers Verona, KB – Cannery Row, KB – Monte Vista, AXIS, Regency Homes – Gables End, Regency Homes – Altaire, 360 Residences, The 88, and City Heights.  There have been price drops and incentives some better than others. 

As a home buyer for a new development make sure you understand that you can write your own offer and negotiate the terms and conditions of what the builders sales department are quoting you.  If you are not a good negoitator make sure your agent is, so you can get the best deal out there.

Similar Posts:

• New California Homebuyer Tax Credit for 2010
• First Time Home Buyers: San Jose
• First Time Home Buyer Tax Credit
• Los Altos, Saratoga, Santa Clara, Sunnyvale, and Mountain View March Home Sales
• FHA Home buyers’ tax credit can be turned into cash at closing

Here are a list of the San Jose first time home buyer programs.  Programs are targeted towards teachers, college professors, and ordinary first time home buyers.  There are income restrictions, so not every buyer qualifies. 

• Teacher Homebuyer Program (THP) – Program for San José public school teachers is designed for credentialed and emergency credentialed full time teachers who teach grades K through 12 in San José.
   
• SJSU Faculty & Staff Homebuyer Program (FSHP) – Program for full-time permanent San José State University (SJSU) employees.
   
• First Time Homebuyer (aka Equity-Share) Program – Downpayment assistance program with varying loan amounts in specific developments for low- and moderate-income first-time homebuyers.
   

The Welcome Home Loan Assistance Program offers a loan up to $25,000 for down payment assistance at 3% simple interest. Please see the San Jose City Wecom Home First Time Home Buyer Program for more information.

Similar Posts:

• Economic Stimulus and Tax Credit
• San Jose REO Home Sold – South 33rd.
• First Time Home Buyer Programs: Santa Clara
• How the California NEW HOME Tax credit Affects the Santa Clara Valley
• First Time Home Buyer Tax Credit

With the economy in it’s current state and the housing market seen as the culprit, you can expect that the government is focusing on stimulating housing and home buying.  As a first time home buyer you are already guaranteed an $8000 tax credit if you purchase between January first and November of 2009.

Here is a local first time home buyer program offered by the City of Santa Clara.  It is a $75,000 dollar second mortgage provided by the city towards the purchase of a home in Santa Clara.  Here are some more details below:

City of Santa Clara 1st Time Home Buyer’s Financing Program

How Does The Financing Program Work?
The Financing Program helps first time home buyers purchase a single-family house, town home, or condominium located in the City of Santa Clara.

Who Is Eligible?
People who have not owned a home in the last three years, People whose annual household income is no greater than 120% of the County’s median income (as calculated based on your household size).

What is the maximum assistance amount?
The maximum City second mortgage is $75,000.

Minimum Down Payment Requirement:
3% of the purchase price, more may be required to qualify

What Are The Terms Of The Second Mortgage?
The City’s second mortgage will be a 20-year loan structured in the following way:
For the first 5 years, the City’s loan will be zero percent interest with no payments;
Starting the sixth year through the twentieth year, the City loan converts to the interest rate of the primary loan, and monthly amortized payments of principal and interest are paid.

Is there any equity share with the city if I sell my home?
No, terms are as above.

What loan programs can I go through? Can I refinance if rates come down?
You can go through any approved conventional 30 year fixed mortgage including FHA or CALHFA for the first mortgage. Yes you can refinance as long as it’s a fixed mortgage and no cash out other than to pay off the city loan.

What kind of interest rate can I expect on the first loan?
The interest rates are market rates determined based on the first mortgage guidelines on credit scores and down payment based on program guidelines.

What is the process to get this program?

1. Get pre-qualified to determine maximum purchase price and loan amount (apply online or request application)
2. Provide supporting income and asset documentation
3. Once your pre-approval letter is issued, go out and look for your home!
4. Once you are in contract to purchase, the escrow period to close will take a normal 30 day time frame to close
    

Schedule of 2006 income limits-120% of median income adjusted to family size:

Household Size Maximum Income

•  1 – $ 88,600
•  2 – $101,300
•  3 – $113,900
•  4 – $126,600
•  5 – $136,700
•  6 – $146,900
•  7 – $157,000

To get started download the prequal application:  santa-clara-first-time-home-buyer-prequal

Similar Posts:

• First Time Home Buyers: San Jose
• San Jose REO Home Sold – South 33rd.
• First Time Home Buyer Tax Credit
• FHA Home buyers’ tax credit can be turned into cash at closing
• Economic Stimulus and Tax Credit