HUD Announcement NOT What is Needed!

HUD: Tax Credit Can Be Used on Closing Costs, NOT As Part of Minimum 3.5% Down Payment! 

It's not at all what the consumer or the real estate industry or homeowners nationwide wanted or needed and it's yet another example of big government not understanding what happens at "street level".  HUD did NOT approve a plan to allow buyers to use the $8,000 first-time home buyer tax credit toward their down payment.  This is a significant back pedal from what everyone thought would be a HUGE help to the buyers and to the real estate market overall.

Unfortunately HUD announced FHA-approved lenders received the go-ahead to develop bridge-loan products that enable first-time buyers to use the benefits of the federal tax credit upfront, according to eagerly awaited guidance from the U.S. Department of Housing and Urban Development on so-called home buyer tax credit loans that was released today.

Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent.

The loans can't be used to cover the minimum 3.5 percent down payment, senior HUD officials told reporters on a conference call Friday morning.

Thus, buyers applying for FHA-backed financing with an FHA-approved lender that offers a bridge-loan program can get a bridge loan to bring down the upfront costs of buying a home significantly but would still have to come up with the minimum 3.5 percent down payment.

In reality, HUD allows the seller of a property to pay "all" of the buyer's closing costs up to 6% (which generally covers all of the costs) and that is how business is generally done in the Central Florida market.  First time buyers come up with the down payment and ask the seller to assist by paying their costs.  I closed three or four transactions in the last 30 days where the seller paid the buyer's full closing costs and pre-paids (escrows) so the buyer's total investment was the 3.5% down payment.  So the big "news" is that not much has changed and this won't help most buyers who are strapped for cash.  The vast majority of sales using FHA financing already do not have the buyer paying closing costs so this new rule in most cases in not a factor and did nothing to stimulate sales and in reality almost nothing to assist a buyer who is short on cash but has acceptable credit, income and job stability to otherwise qualify. 

So the bottom line is that the big announcement by HUD is actually a big disappointment.  HUD, please revisit this issue and give the consumers what they want and need.  What better use could there possibly be for the $8,000 tax credit than to have the buyer plunk it down as a down payment on their first home?  You're going to give them the money anyway so why not give it to them to fund the purchase?  I understand HUD wants the buyer to have an investment (some "skin in the game") but they're going to give them the $8,000 with NO restrictions on how it is spent or wasted...why not use it as their down payment?  That sounds like better use of the money than buying furniture or a couple of new flat panel TV's or taking a vacation!

Home Buyer Tax Credit Loans Update

HUD: Homebuyer Tax Credit Loans Still on Track

News reports that the federal government is backing away from its plan to permit eligible borrowers to monetize the first-time homebuyer tax credit are off the mark, a spokesperson for the U.S. Department of Housing and Urban Development says.

"The technical details are still being finalized and will soon be published in a mortgagee letter and posted on our Web site," Lemar Wooley, a HUD spokesperson, told REALTOR® Magazine Wednesday afternoon.

Under the guidance that's under development, state agencies and other HUD-approved entities would be able to provide short-term bridge loans that households could use to help with their downpayment. The loans would be repaid with the proceeds from the households' federal tax credit.

The loans were announced on the opening day of NAR's 2009 Midyear Legislative Meetings in Washington, D.C., last week. In his announcement, HUD Secretary Shaun Donovan said guidance would be issued shortly.

When the guidance is released, it is expected to cover eligible lenders and set parameters for loan terms and repayment.

Source: REALTOR® Magazine Online

IRS Form 5405 To Claim Your $8,000 Tax Credit!

IRS Form to Claim Home Buyer Tax Credit

Below is a link directly to the IRS Form 5405 to claim the 2009 First-Time Home Buyer Tax Credit of $8,000.  The form has the information to determine if you qualify or feel free to call or email me with your questions!

Encourage your friends, family and co-workers to buy a home between now and December 1, 2009 to receive $8,000 if you meet the simple guidelines.  My previous post contained the FAQ's so I won't repeat them here but feel free to call or email if you have any questions!

www.irs.gov/pub/irs-pdf/f5405.pdf

Have a great weekend!

Marty

2009 Home Buyer's Tax Credit Quiz/Q&A

2009 HOME BUYER TAX CREDIT Q&A
You answered 12 out of 12 questions correctly. OK, genius, you obviously paid attention to news about the tax credit! But there's always more to learn. The 2009 First-time Home Buyer tax credit can be a great incentive to get first-time buyers ready to purchase. Learn even more: Download the slides and replay the broadcast from a REALTOR® Magazine Webinar, or access additional information at REALTOR.org. 1. To qualify for the 2009 First-Time Home Buyer Tax Credit, a home must be purchased in what time period?   Your Answer Is Correct: Jan. 1, 2009-Dec. 1, 2009 The home must be purchased on or after Jan. 1, 2009 and before Dec. 1, 2009 to qualify.   2. In order to qualify for the full $8,000 tax credit, the house must be at least what price?   Your Answer Is Correct: $80,000 Any home that is purchased for $80,000 or more will qualify for the full $8,000 credit. The credit is equal to 10 percent of the home's purchase price, up to $8,000. So if the house costs less than $80,000—say, $75,000—the credit will be 10 percent of the cost (in this case, a $7,500 credit).   3. A first-time home buyer is defined as a buyer who hasn't owned a principal residence for how long?   Your Answer Is Correct: 3 years prior to the purchase A first-time home buyer is considered to be a purchaser who has not owned a home in the three years previous to the day of the 2009 purchase. So if the last time you owned a home was in 2005, you would be eligible for the tax credit, even though it's not technically your "first" home. Married joint filers must both meet this "first-time home buyer" requirement in order to claim the credit on a joint return.   4. What is the income limit for claiming the full tax credit for married taxpayers filing a joint return?   Your Answer Is Correct: $150,000 Married couples filing jointly cannot have an income of more than $150,000 to qualify. If the couple makes more, they don't lose out entirely, though. The credit phases out for married couples (filing jointly) who earn $150,000 to $170,000 in annual income, with a smaller credit being awarded for the higher amounts. Learn more about the formula at REALTOR.org.   5. What is the income limit for claiming the full tax credit for a single taxpayer?   Your Answer Is Correct: $75,000 Similar to married couples filing jointly, singles making more than $75,000 in annual income don't necessarily lose out entirely on the benefit of the credit. The credit phases out for single filers earning between $75,000 and $95,000. Learn more about the formula at REALTOR.org.   6. How is a home buyer’s income determined for tax credit eligibility?   Your Answer Is Correct: Adjusted Gross Income (AGI) For most individuals, “income” will be defined and calculated as Adjusted Gross Income (AGI) on their IRS 1040 income tax return forms. AGI includes wages, salaries, interest and dividends, pensions and retirement earnings, rental income, and several other elements. AGI is the number that appears on the bottom line of the front page of a 1040 form.   7. What is the most significant difference between this tax credit and the one Congress approved in July 2008?   Your Answer Is Correct: The repayment feature is eliminated. The 2008 home buyer tax credit that Congress approved was basically an interest-free loan but it had to be repaid over 15 years, whereas the 2009 tax credit does not have to be repaid. The 2008 tax credit also had a limit of $7,500.   8. What types of homes do not qualify for the tax credit?   Your Answer Is Correct: They all qualify Basically any home that is used as a principal residence qualifies for the tax credit, including single-family houses, mobile homes, townhouses, condos, manufactured homes and even houseboats. Generally, you must spend 50 percent or more of your time in the home for it to be considered a principal residence.   9. To claim the tax credit, you will need to:   Your Answer Is Correct: Claim it on your federal income tax return. It's that easy: Just claim it on your federal income tax return; no pre-approval is necessary. Home buyers will need to complete IRS Form 5405 to determine their credit amount and then claim that amount on Line 69 of their 1040 income tax return.   10. Which of the following statements about the tax credit is TRUE?   Your Answer Is Correct: Vacation homes and rental properties are not eligible. The home must be a principal residence that is owned by the occupant, so vacation homes and rentals would not be eligible for the tax credit.   11. What if buyers are eligible for an $8,000 credit, but their entire income tax liability for the year is only $5,000?   Your Answer Is Correct: They'll get a refund for $3,000. Any credit amount unused will be refunded as a check to the buyer. So the purchaser would receive the difference between the $8,000 credit amount and the amount of tax liability (so in the above case, a $3,000 refund).   12. How long do owners have to stay in their homes without having to repay the tax credit?   Your Answer Is Correct: 3 years The home cannot be sold until three years after the purchase, or owners will be required to repay the tax credit. This is to prevent buyers from flipping properties in order to cash in on the credit.