If you’ve been sitting on the fence trying to decide whether to buy a house or refinance a mortgage, you should act soon. New loans are starting to get costlier.
The mortgage market is facing pressures from new laws and regulations, still-declining home prices and the ongoing need for government-owned mortgage players to shore up their finances. The Mortgage Bankers Association predicts mortgage originations, which reached $3 trillion in 2005, will be less than $1 trillion this year, the lowest level since 1997.
“The price of mortgage money is going to go up, and the availability of mortgage money may also be impinged,” says Keith Gumbinger, vice president at HSH Associates, which tracks mortgage data.
The silver lining is that the rate for a 30-year fixed loan is hovering around 5% for those with good credit. That is up about a percentage point from last year’s lows but is still an attractive rate by historical standards, though expected to keep climbing as the economy improves.
Home prices in some areas are still falling, but they are bottoming out or firming up in others. It may not be the perfect time to buy a home — but better mortgage options today may be a worthy trade-off to the possbility of lower prices tomorrow.
–adapted from The Wall Street Journal
On November 6, 2009, President Obama signed a bill to extend the tax credit for first-time homebuyers through June 30, 2010 at a maximum purchase price of $800,000! The bill also opens up opportunities for others who are not buying a home for the first time.
WHO GETS WHAT?
First-time Homebuyers (FTBHs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000.00.
Current Homeowners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of 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.
THE NEW DEADLINE
In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.
TAX CREDIT VS. TAX DEDUCTION
It’s important to remember that the tax credit is just that… a tax credit. Tax credit is a direct reduction in tax liability, owed by an individual to the Internal Revenue Service (IRS). The benefit of a tax credit is that it’s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a first-time homebuyer were to owe $8,000 in income taxes and would qualify for a tax credit of $8,000, she would owe nothing.
Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a first-time homebuyer is eligible for a tax credit of $8,000 but is liable for $4,000 in income tax, she can still receive a check for the remaining $4,000!
WHAT ARE THE INCOME CAPS?
The amount of income someone can earn and qualify for the full amount of the credit has been increased.
Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap receive a partial credit. However, filers who earn $145,000 and above are ineligible.
Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.
HOW MUCH ARE FTHBs 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 FOR 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.
IF A PARENT (WHO WILL NOT LIVE ON THE PROPERTY) CO-SIGNS 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.
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.
- They do not use the home as their 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.)
As always, if you have any questions about your specific situation or would like to discuss how you may benefit from this program, please call or email us. We will be happy to sit down with you. –Tara and April
This tax credit is not a gift or a grant but essentially a 15 year loan to the homebuyer and, while it is interest free, will require filing a tax return and will carry the same IRS penalties for non-payment as accrue to delinquent taxes.
Warnings duly noted, further information and the regulations regarding this tax credit are now available. If you have an interest in the program, here are some basic facts.
The credit is available only to first-time homebuyers defined as buyers who have not owned a principal residence for three-years prior to the subject purchase. The ownership test applies to both partners in a marriage; i.e. if a husband has not owned a home in the past three years but the wife has, neither spouse qualifies for the first-time home buyer tax credit. A buyer can still be eligible for the credit even if he owns a vacation home or rental property not used as a principal residence.
There is no need to fill out an application to qualify for the tax credit. First-time homebuyers merely claim the credit when filing the tax return for that year. No pre-approval is necessary, but if you are relying on this program to purchase a home you may want to check your eligibility. Your tax advisor may be able to help.
But like so many good things in life, time is of the essence for buyers who want to take advantage of this opportunity. Only homes purchased on or after April 9, 2008 and before July 1, 2009 are eligible. Information on these and other details of the program can be researched on a website maintained by the National Association of Homebuilders at www.federalhousingtaxcredit.com.
When you move there seems to be an endless list of things you need to change. Here are three more, and the forms to help you.
These are all PDF forms that you can print out, fill out and mail in.
What is Title Insurance?
Newspapers refer to it in the weekly real estate sections and you hear about it in conversations with real estate brokers. If you’ve purchased a home you may be familiar with the benefits of Title Insurance. However, if this is your first home, you may wonder, “Why do I need yet another insurance policy?” While a number of issues can be raised by that question, we will start with a general answer.
The purchase of a home is one of the most important investments you will ever make. You and your mortgage lender will want to make sure the property is indeed yours and that no one else has any lien, claim or encumbrance on your property.
Below are some questions frequently asked about an often-misunderstood line of insurance — Title Insurance.
Title insurers work to identify and eliminate risk before issuing a Title Insurance policy. Casualty insurers assume risks.
Casualty insurance companies realize that a certain number of losses will occur each year in a given category (auto, fire, etc.). The insurers collect premiums monthly or annually from the policyholders to establish reserve funds in order to pay for expected losses.
Title companies work in a very different manner — Title Insurance will indemnify you against loss under the terms of your policy. However, title companies work in advance of issuing your policy to identify and eliminate potential risks and therefore prevent losses caused by title defects that may have been created in the past.
Title Insurance also differs from casualty insurance in that the greatest part of the Title Insurance premium dollar goes towards risk elimination. Title companies maintain “title plants” which contain information regarding property transfers and liens reaching back many years. Maintaining these title plants, along with the searching and examining of title, is where most of your premium dollars go.
Who Needs Title Insurance?
Buyers and lenders in real estate transactions need Title Insurance. Both want to know that the property they are involved with is insured against certain title defects. Title companies provide this needed insurance coverage, subject to the terms of the policy. The seller, buyer and lender all benefit from the insurance provided by title companies.
What Does Title Insurance Insure?
Title Insurance offers protection against claims resulting from various defects (as set out in the policy) that may exist in the title to a specific parcel of real property, effective on the issue date of the policy. For example, a person might claim to have a deed or lease giving them ownership or the right to possess your property.
Another person could claim to hold an easement giving them a right of access across your land. Yet another person may claim that they have a lien on your property securing the repayment of a debt. That property may be an empty lot or it may hold a 50-story office tower. Title companies work with all types of real property.
What Type of Policies Are Available?
Title companies routinely issue two types of policies: An “owner’s” policy which insures you, the homebuyer, for as long as you and your heirs own the home; and a “lenders” policy which insures the priority of the lender’s security interest over the claims that others may have in the property.
What Protection Am I Obtaining With My Title Policy?
A Title Insurance policy contains provisions for the payment of the legal fees in defense of a claim against your property, which is covered under the policy. It also contains provisions for indemnification against losses which result from a covered claim. A premium is paid at the close of a transaction. There are no continuing premiums due, as there are with other types of insurance.
What Are My Chances of Ever Using My Title Policy?
In essence, by acquiring your policy, you derive the important knowledge that recorded matters have been searched and examined so that Title Insurance covering your property can be issued. Because we are risk eliminators, the probability of exercising your rights to make a claim is very low. However, claims against your property may not be valid, making the continuous protection of the policy all the more important. When a title company provides a legal defense against claims covered by your Title Insurance policy, the savings to you for that legal defense alone will greatly exceed the one-time premium.
What If I Am Buying Property From Someone I Know?
You may not know the owners as well as you think you do. People undergo changes in their personal lives that may affect title to their property. People get divorced, change their wills, and engage in transactions that limit the use of the property, and have liens and judgments placed against them personally for various reasons.
There may also be matters affecting the property that are not obvious or known, even by the existing owner, which a title search and examination seeks to uncover as a part of the process leading up to the issuance of the Title Insurance policy.
Just as you wouldn’t make an investment based on a phone call, you shouldn’t buy real property without assurances as to your title. Title Insurance provides these assurances.
The process of risk identification and elimination performed by the title companies, prior to the issuance of a title policy, benefits all parties in the property transaction. It minimizes the chances that adverse claims might be raised and, by doing so, reduces the number of claims that need to be defended or satisfied. This process keeps costs and expenses down for the title company and maintains the traditional low cost of Title Insurance.