Home buyer tax credits: Frequently asked questions

Home buyer tax credits: Frequently asked questions

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• By Sandra Block, USA TODAY

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If you're in the market for a home, the world is your oyster. Interest rates are at record lows. Housing prices in many parts of the country are still depressed. And you may be eligible for a generous tax break, even if the home you buy isn't your first.

On Nov. 6, President Obama signed legislation that provides a $6,500 tax credit for some current homeowners who buy another home. The law also extends the $8,000 tax credit for first-time home buyers, scheduled to expire Nov. 30, until next spring.

CHART: Original tax credit vs. newer expanded version

HOME PRICES: Index shows gains; see 20 metro areas

Judging from the mail we've received, a lot of people are interested in taking advantage of this tax break. But the expanded credit also has whipped up a lot of confusion. Here are some answers to questions from readers:

Q: How do I qualify for the $6,500 credit?

A: This credit is available for home buyers who sign a binding contract on a new or existing home by April 30, 2010, and settle by July 1 (deadlines that also apply to the first-time home buyer credit). You must have lived in your existing home for five consecutive years out of the last eight. The home you purchase must be your primary residence. However, the law doesn't require you to sell your old home, says Bob Meighan, vice president at TurboTax, the tax software provider. You can use it as a second home or a rental and still claim the credit, he says.

Q: I sold a home I had lived in for more than five years and bought a new one in August. Do I qualify for a tax credit?

A: No. For existing homeowners, the $6,500 credit is limited to homes purchased after Nov. 6.

Q: Does the home I buy have to be more expensive than the one I own now?

A: No. While the real estate industry is hopeful that homeowners will use this credit to buy a nicer place, there's no prohibition against using it to downsize, Meighan says. That makes this credit particularly useful for seniors who are interested in moving into a smaller home.

If you are planning to move up, keep in mind that you can't claim the credit if the purchase price of the home exceeds $800,000. Unlike some other tax credits, this one doesn't slowly phase out once you exceed the threshold, Meighan says. If you buy a home for more than $800,000 — and that refers to the purchase price, not the assessed value or the amount of your mortgage — you are ineligible for the credit, period.

The $800,000 cap also applies to first-time home buyers, but only those who purchase a home after Nov. 6. First-time home buyers who bought a home for more than $800,000 between Jan. 1 and Nov. 6 can still claim the credit, assuming they meet the other criteria, Meighan says.

Q: I'm an existing homeowner, and would like to build a new home. Can I claim the credit?

A: Yes, but make sure your builder is good at meeting deadlines. You can claim the credit as long as you have a binding contract in place by April 30 and close by July 1. In the case of a new home, the closing date is the day you move in, Meighan says. If your home isn't habitable by June 30, you won't be able to claim the credit, he says.

Q: I bought a home in 2008 and claimed the old $7,500 first-time home buyer's credit, which must be repaid over 15 years. Did the new law change that rule?

A: No. That credit, which was available for homes purchased between April 9, 2008, and Dec. 31, 2008, must still be repaid.

The $8,000 first-time home buyer credit, available for homes purchased after Dec. 31, 2008, doesn't have to be repaid as long as you remain in the home for at least three years. Existing homeowners who qualify for the $6,500 credit don't have to repay that money, either, as long as they meet the three-year requirement.

Q: We have a rental home and would like to sell it to our son, who has never owned a home. Would he qualify for the first-time home buyer credit?

A: No. The legislation specifically prohibits taxpayers from claiming the credit if the sale is between "related parties," Meighan says. A home sale to a parent, grandparent, child or grandchild would fall into that category.

Q: I sold my home this year and have been renting since. If I buy a new home, do I qualify for the expanded credit?

A: Yes, as long as you meet all of the other requirements, says Mel Schwarz, partner with Grant Thornton in Washington, D.C. The eight-year period used to determine eligibility ends on the day you buy your new home, he says.

Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns. E-mail her at: sblock@usatoday.com. Follow on Twitter: www.twitter.com/sandyblock

ORIGINAL TAX CREDIT VS. NEWER EXPANDED VERSION | Column

On Nov. 6, President Obama signed legislation expanding a tax credit implemented this year as part of the economic stimulus package. What changed:
	Stimulus credit	Expanded credit
First-time home buyer credit	$8,000	$8,000
Credit for current homeowners who buy a home	Not available	$6,500
Expiration of credit	Nov. 30	April 30, 2010*
Income limits	$75,000 single; $150,000 married; additional $20,000 phase-out.	$125,000 single; $225,000, married; additional $20,000 phase-out
Limit on cost of purchased home	None	$800,000
* = home buyer has until July 1 to close; Source: National Association of Realtors.

Monday, November 30, 2009, 3:15pm MST

Denver-area luxury housing market drops in October

Denver Business Journal

The Denver area’s luxury-housing market declined in number of resales and selling price in October year over year, partly because homeowners in that price range haven’t been able to benefit from federal homebuyer tax incentives.

Sales of existing homes in the $1 million-plus price range dropped 15 percent in October, to 44 homes, from 52 for the same month of 2008, according to the Coldwell Banker Residential Brokerage of Colorado’s Denver Metro Area Luxury Home Report, released Monday. Coldwell Banker’s data came from metro Denver’s Metrolist Inc. multiple listing service (MLS).

October high-end home sales were down from 46 in September of this year.

Existing home sales, or resales, are those of homes that have been sold at least once before.

Median selling price decreased 8.5 percent to $1.22 million last month from $1.33 million year over year. The October sales price was down 16.5 percent, from $1.47 million in September of this year.

Median selling price is the midpoint between highest and lowest sales prices. Some real estate professionals consider median a truer measure of price than average because it’s not skewed by highest and lowest prices.

Sellers of luxury homes received 88 percent of their asking price on average in October, compared to 92 percent for the same month in 2008. Home sellers got 87 percent of asking price in September of this year.

“The high-end market continues to try to find its footing, as much of the activity in housing is still in the entry-level market,” Chris Mygatt, president of Coldwell Banker in Denver, said in a statement. “Distressed property sales and the first-time homebuyer tax credit have kept the mix of sales at the lower price ranges in many areas.”

Sellers and buyers of higher-priced homes haven’t benefitted from the first-time homebuyer tax credit generally because they’re not interested in living in lower-priced homes, and/or couldn’t meet the income and homeownership requirements. (Housing investors don’t qualify for the credit.)

This year’s first-time homebuyer tax credit allowed buyers who hadn’t owned a home in the last three years to get a tax credit of as much as $8,000 for buying a home.

The tax credit, which was to have expired Monday, was recently extended, and another homebuyer tax credit was added by the U.S. Congress.

In addition to the first-time homebuyer credit, there’s now a tax credit of as much as $6,500 for repeat homebuyers who have owned a home for the last five years. The credits expire April 30, 2010, and home sales must close by June 30.

Income limits for credit users range from $125,000 for individuals to $245,000 for joint filers.

Other October data regarding sales of luxury homes:

• It took longer to sell a house in October of this year — 130 days — than it did in October 2008, when it took 84 days.

• The priciest sale of the month was a three-bedroom, three-bath house in Boulder that sold for $2.4 million.

• Denver had the most $1 million-plus sales with 11, followed by Boulder with eight.

Total metrowide October resales were down 7.6 percent year over year to 3,958, from 4,282 in October 2008. Sales last month were up 2.9 percent from September resales, partly because buyers wanted to take advantage of the first-time homebuyer tax credit before what was to have been its Nov. 30 expiration.

Compiled by Paula Moore | pmoore@bizjournals.com | Paula's blog: http://denver.bizjournals.com/denver/blog/real_deals/

Monday, December 7, 2009, 10:16am MST | Modified: Monday, December 7, 2009, 10:01pm

Denver near the middle in Forbes report on affordable cities

Denver Business Journal

When it comes to affordable cities with stable employment and good housing markets, a new Forbes.com report ranks Denver as a bit better than average.

Forbes puts Denver at No. 43 out of 100 large U.S. metro areas on a list of the "Best Bang for the Buck Cities."

The survey looked at factors like commute times, home vacancies, housing affordability, real estate taxes, unemployment and jobs forecast.

The Denver-Aurora area ranks 14th among the 100 cities for low unemployment, 17th for best home-price forecast, and 20th for best job forecast.

On the other hand, Forbes ranks Denver 82nd out of 100 for typical travel times, 78th for housing affordability, and 71st for rental-home vacancies.

The "best bang for the buck" list is topped by Omaha-Council Bluffs, Iowa; Little Rock, Ark; and Jackson, Miss.

The lowest-ranked communities on the list include the New York-Northern New Jersey-Long Island metro area (No. 98), Miami (No. 99) and Los Angeles (No. 100).

Click here for the Forbes report. And click here for the full list of 100 cities.

denvernews@bizjournals.com

Government Announces Short Sales Guidelines

Government Announces Short Sales Guidelines
The U.S. Treasury Department announced new guidelines this week designed to make short sales go more smoothly.

To qualify under these new guidelines:

• The property must be the home owner’s principal residence.
• The home owner must be delinquent on the mortgage or close to defaulting.
• The loan must have been made before Jan. 1, 2009, and be for less than $729,750.
• The borrowers’ total monthly mortgage payment must exceed 31 percent of their before-tax income.

Under the plan, borrowers will receive $1,500 from the government for selling homes for less than the amount of their mortgages. Mortgage-servicing companies will get $1,000 for each completed short sale. Second-mortgage holders can receive up to $3,000 of the sales proceeds in exchange for releasing their liens. Investors who hold the first mortgage can collect up to $1,000 from the government for allowing the payments.

Borrowers who complete a short sale under the program must be "fully released" from future liability for the debt, according to the guidelines.

Source: Associated Press, J.W. Elphinstone (11/01/2009) and The Wall Street Journal, Ruth Simon (11/01/2009)

Wednesday, December 2, 2009, 2:50pm MST

Re/Max: Home short sales likely to increase

Denver Business Journal

Re/Max International Inc. of Denver expects “short sales” — sales of homes for less than the amount owed on the mortgage — to increase nationwide because of the federal government’s newly released guidelines for such sales.

“Until now, the short sale process has been cumbersome for all involved, and took upwards of eight to 10 months for a transaction to close. … But with new guidelines issued Monday, short sale transactions will increase dramatically, which means less vacant and vandalized properties in neighborhoods across the country,” Re/Max Chairman Dave Liniger said in a Wednesday statement.

Re/Max is one of the world’s largest franchisors of residential real estate brokerage firms, with operations in more than 70 countries.

On Monday, the U.S. Treasury Department set long-awaited guidelines designed to simplify and speed up the short sale process through its Home Affordable Foreclosure Alternatives Program. The program goes into effect April 5.

Short sales, which must be approved by the mortgage lender, are alternatives to foreclosure, and preferable for homeowners over foreclosure because short sales don’t hurt the seller’s credit rating.

The new short sale guidelines include:

• Mortgage servicers have 10 days to accept or deny a short sale request. After a sale is completed, the borrower could be completely released from debt.

• Borrowers are eligible to receive a $1,500 moving allowance, if they sell their home through a short sale.

• Mortgage servicers will receive $1,000 for each completed short sale.

• Investors who hold first mortgages can get as much as $1,000 for allowing second lienholders to release their liens. A lien is a charge against a property that makes it security for payment of things such as a mortgage, debt or taxes.

• Second lienholders can get only as much as $3,000 in proceeds from short sale to release their liens.

In recent months, second lienholders have demanded more money from the buyer, seller or first lien holder to release their claims. This country’s largest second lienholders include Bank of America Corp., Wells Fargo & Co., JP Morgan Chase & Company and Citigroup Inc.

The Treasury Department’s new short sale program expands on its Home Affordable Modification Program (HAMP), which offered incentives to mortgage lenders to modify loans for homes on the brink of foreclosure, rather than foreclosing on the homes. HAMP has had only limited success.

The treasury department on Monday also increased pressure on mortgage lenders to make 650,000 trial loan modifications permanent.

“… The Treasury’s new guidelines go a long way in incentivizing both lenders and homeowners to work together to keep homes from falling into foreclosure,” Liniger said.

A recent study by the University of Michigan states that U.S. foreclosures will begin to fall next year, but the national housing market will continue to “take a beating for some time to come” because of steep increases in unemployment.

After increasing more than 30 percent a year for the last four years, foreclosures will drop to about 1.75 million in 2010 and 2011, the study predicts. They should be down to less than 1.5 million by early 2012.

The study says the decreasing foreclosures are being driven by the improving national economy, slowing home price depreciation and tighter mortgage underwriting standards.

Compiled by Paula Moore

Investor Report: REO Listings

Investor Report: REO Listings

by Kenneth R. Harney

Fannie Mae calls its latest REO home sales program "First Look," but investors might want to call it "Second Look."

That's because the "first look" at all of Fannie's new REO listings, starting this month, will now go to home buyers who plan to occupy the units they purchase, or to local public agencies participating in "neighborhood stabilization" or community development programs.

When Fannie lists one of its tens of thousands of foreclosed and repossessed houses for sale through a participating real estate broker, investors will be barred from submitting bids for the first fifteen days.

During that time, Fannie will only consider offers from owner-occupant purchasers and local agencies -- even if investors are ready to make superior, all cash competing bids.

Once the fifteen days are up, everybody will be free to bid - investors, ordinary home buyers and government agencies.

Terry Edwards, Fannie's executive vice president for credit portfolio management, explained that the company is intentionally trying to give a leg up to ordinary buyers over private investors in order to increase owner occupancy levels in neighborhoods hard hit by waves of foreclosures.

"First Look provides owner occupants and public entities that are committed to the community an early opportunity to purchase one of Fannie Mae's REO properties," he said.

Under the revised First Look policy, owner occupants who have qualified for local financing assistance using the Obama administration's neighborhood stabilization program will also be eligible for deal-sweeteners that won't be available to investors.

For example, they won't have to come up with the usual earnest money deposits that other bidders are required to make, but instead can put down as little as $500 to tie up the property. Owner occupant purchasers will also get up to 45 days to close on their transactions -- 15 days longer than other bidders get from Fannie Mae.

Despite the second tracking for private investors, however, Fannie will continue to offer its favorable Home Path financing options for investors -- including low downpayments and no appraisal fees.

What's the likely impact of the new policy on investors? At the moment that's not clear. Investors have been key partners to Fannie in disposing of its ever-growing inventory of REO, and Fannie's goal as a corporation remains that of maximizing its returns on its assets. Fannie doesn't want to chase away investors.

But let's face it: Fannie is also a totally federally controlled entity today -- and politically it makes a lot of sense to work with the Obama administration when it comes to promoting home ownership.

Long-Term Rates Set Another Low in Freddie Mac Weekly Survey

Long-Term Rates Set Another Low in Freddie Mac Weekly Survey

McLean, VA – Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 4.71 percent with an average 0.7 point for the week ending December 3, 2009, down from last week when it averaged 4.78 percent. Last year at this time, the 30-year FRM averaged 5.53 percent. The 30-year has never been this low since Freddie Mac began its weekly survey in 1971.

The 15-year FRM this week averaged 4.27 percent with an average 0.6 point, down from last week when it averaged 4.29 percent. A year ago at this time, the 15-year FRM averaged 5.77 percent. The 15-year FRM has never been this low since Freddie Mac started tracking it in 1991, and breaks the record low set last week.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.19 percent this week, with an average 0.6 point, up slightly from last week when it averaged 4.18 percent. A year ago, the 5-year ARM averaged 5.77 percent. The 1-year Treasury-indexed ARM averaged 4.25 percent this week with an average 0.6 point, down from last week when it averaged 4.35 percent. At this time last year, the 1-year ARM averaged 5.02 percent. The 1-year ARM has not been this low since the week ending June 30, 2005, when it averaged 4.24 percent.

"Interest rates for 30-year and 15-year fixed-rate mortgages fell for the fifth consecutive week to an all-time record low while the average rate on 5-year ARMs hovered near its record set in the previous week," said Frank Nothaft, Freddie Mac vice president and chief economist. "In addition, interest rates on 30-year and 15-year fixed mortgages thus far in 2009 averaged one percentage point below their respective average in 2008."

"Low mortgage rates and the cumulative decline in house prices have contributed to an extremely affordable housing market and helped spur home sales this year. For instance, total new and existing home sales in October were 36 percent higher than their January low on a seasonally adjusted, annualized rate, according to the U.S. Census Bureau and the National Association of Realtors® (NAR ). The NAR also reported that pending existing home sales rose for the ninth straight month in October, representing the longest consecutive gain since the series began in 2001, according to the National Association of Realtors. Seven of those months were the most affordable on record dating back to 1971, based on the NAR’s Housing Affordability Index ."