$8,000 First-time Home Buyer Tax Credit Details

• The $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• The tax credit applies only to homes priced at $800,000 or less.
• The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
• For homes purchased on or after January 1, 2009 and on or before November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing jointly.
• For homes purchased after November 6, 2009 and on or before April 30, 2010, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

The $6,500 Move-Up / Repeat Home Buyer Tax Credit Details

• To be eligible to claim the tax credit, buyers must have owned and lived in their previous home for five consecutive years out of the last eight years.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500.
• The tax credit applies only to homes priced at $800,000 or less.
• The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, the home purchase qualifies provided it is completed by June 30, 2010.
• Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

What all this means is that if you are thinking of buying a new home, now is the time – you still have a few months to pick out a house and close on it and still get the tax credit.

So hurry up and start shopping now before it is too late!

It might.

Currently there is at least one piece of legislation in place that if passed could not only extend the 8000 tax credit, but it would also increase it to a $15,000 tax credit and be available to all home buyers, not just first time home buyers.

The piece of legislation is HR 2801 and although it has a ways to go before passing, it is possible that it will pass.

“H.R. 2801 (111th Congress) 2009-2010 Home Ownership Moves the Economy (HOME) Act of 2009, is a bill sponsored by Howard Coble, a U.S. Representative from North Carolina’s 6th District. Representative Coble’s bill’s goal is to extend the tax credit into 2010 as well as allow all home buyers take advantage of the tax credit.”

The official summary of the bill that was introduced on 6/10/2009 states:

Home Ownership Moves the Economy (HOME) Act of 2009 – Amends the Internal Revenue Code to:
(1) extend the first-time homebuyer tax credit to all individuals who purchase a principal residence (currently, only first-time homebuyers as so defined);
(2) extend such credit and the waiver of recapture requirements for such credit through 2010; and
(3) repeal the limitation on such credit based on modified adjusted gross income.

Will the 8000 tax credit get extended? In Washington, anything could happen – and expect this to be a fight as the deadline for the 8000 tax credit gets closer.

Which means that if you haven’t yet started the process of buying a home, you might want to think about getting on the ball. Remember, buying a home takes time. You first spend time searching for the right home, then you spend time writing an offer, negotiating the final price and then it is time to get your financing through the loan process.

If you think that you have “plenty of time” consider these things:

• Due to current market conditions, in many parts of California, houses in the sub-$300k range are getting multiple offers – which means you may need to “bid” on multiple properties before “winning” one.

• It “normally” takes 30 days to get your financing arranged once you have a sales contract.

• According to the IRS, you must actually close on the home home for it to be considered occupied and qualified for the credit.

If you are wondering if the 8000 tax credit will be extended, the official answer is that it might get extended… but it isn’t something that you should count on. In order to get the 8000 tax credit extended, it will take an act of congress — and we all know how those things go.

In the last few months, only a select few lenders have not required a minimum of a 620 credit score on all California FHA streamline refinances. Yesterday, the last major lender who used to not require a minimum credit score has announced that they now require a 620 credit score for all California FHA streamline refinance loans. Taylor, Bean and Whittaker announced that they would now be requiring at least a 620 minimum credit score on all California FHA streamline mortgage refinance loans.

New Minimum Credit Score Announcement Details

FHA Streamlines (credit and non-credit qualifying) and VA IRRRL’s with Credit Scores below 620 must be LOCKED prior to July 13, 2009 AND must CLOSE (Note Date) no later than September 15, 2009, and must be delivered to TBW within 10 days after closing Loans in this category locked on and after July 13, 2009 will require a minimum FICO of 620. Clients will be required to obtain a 3 Repository credit report and utilize the standard method of determining qualifying FICO.

Any Conventional, FHA (including Streamline Refinance), or VA (including IRRRL) loan that exceeds $417,000 with a Credit Scores below 660 must be LOCKED prior to July 13, 2009 AND must CLOSE (Note Date) no later than September 15, 2009, and must be delivered to TBW within 10 days after closing Loans in this category locked on and after July 13, 2009 will require a minimum FICO of 660. Clients will be required to obtain a 3 Repository credit report and utilize the standard method of determining qualifying FICO.

In addition, any previously announced minimum Credit Score requirements that TB&W has put into place, that did not have a specified Closing date, will be required to be LOCKED prior to July 13, 2009 AND must CLOSE (Note Date) no later than September 15, 2009, and must be delivered within 10 days after closing. Therefore, any loan, regardless of whether it may be locked, registered or approved, that has a qualifying credit score below 620 (with the exception of those loans that have specified higher FICO requirements) must CLOSE (Note Date) no later than September 15, 2009.

TB&W will continue to allow non-traditional credit for those borrowers with no useable credit for the loan programs that allow the use of such credit in accordance with published guidelines. TB&W is fully aware that these limitations may result in the inability for a particular loan to meet these specified deadlines. TB&W will work as diligently as possible to accommodate all loans in the pipeline. We will be unable to grant any extensions or exceptions to these requirements.

California FHA Streamline Refinance: What Does This Mean?

Although the FHA guidelines do not officially require a minimum credit score, virtually all lenders (and all of the major lenders) in the US are now requiring a minimum of a 620 credit score. TB&W was the last major US lender who was not requiring that you had at least a 620 minimum credit score. It is possible that there are still smaller lenders who can offer the California FHA refinance streamline loan with no minimum credit score requirement, but it might be difficult to find them.

According to the Official Mortgagee Letter (2009-15):

“Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer.  In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive.  (Example:  $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)”

HUD then addresses how they are going to track the costs that people are paying and indicates what will happen if they find organizations violating the rules that have been established:

In order to track the tax credit monetization activities, FHA will require FHA-approved mortgagees to input into FHA Connection the following data:

• Name and EIN of the party who purchased the tax credit,
• The amount of the anticipated credit, and
• The amount the homebuyer paid for the monetization services.

The lender must also collect and maintain in the FHA case file the documentation that validates all of the tax credit monetization data submitted via FHA Connection.

FHA will monitor the purchase of tax credit transactions closely.  Charging of excessive fees or costs in the purchase of the tax credit or increasing other fees or charges in the transaction without FHA approval may result in referral to the Mortgagee Review Board, and particularly with respect to entities that are not FHA-approved mortgagees, referral to the Federal Trade Commission, or referral to the appropriate State Attorney General office, as may be applicable.

HUD has done an excellent job of laying out the rules of exactly how you can take advantage of the new home buyer tax credit and how much it should cost to do so.

Now the speculation can end – HUD has gave official guidance in the form of a Mortgagee Letter 2009-15.

Note: According to the Mortgagee Letter 2009-15, you cannot use the monetization of the tax credit for your 3.5% down payment.

Conditions of the 8000 Tax Credit Monetization Plan

If someone wants to turn their tax credit into cash to help cover closing costs or add to their 3.5% down payment they are required to have for a down payment, these conditions apply:

1. The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the borrower.
2. The second lien may not exceed the total amount needed for the down payment, closing costs, and prepaid expenses.
3. Secondary financing may be “soft” (silent) or require a monthly repayment.
   If payments are required, they must be included within the qualifying ratios and, when combined with the first mortgage, cannot exceed the borrower’s reasonable ability to pay.
4. Payments must be deferred for at least 36 months to not be included in the qualifying ratios.
5. If the tax credit advance loan has a short term for repayment, it must also provide that if the borrower fails to repay by the designated deadline, principal and interest payments begin automatically or the loan converts to a “soft” second.
6. The secondary financing may not require a balloon payment before ten years.

Lender Due Diligence Required For 8000 Tax Credit Monetization Plan

If someone wants to turn their 8000 tax credit into cash/credit to help cover closing costs, they can expect the lender to do at least these things as part of the lender due diligence process:

1. Require the home buyer to draft and provide the IRS form 5405 “First-Time Home buyer Credit.”
2. Contact the borrower’s employer and review pay stubs to confirm there are no outstanding garnishments.
3. Review the home buyer’s credit report to ensure there are no unpaid student loans, or other obligations that could be offset against the credit.
4. Validate that all of the eligibility requirements for the tax credit are fulfilled
   Review previous tax returns and IRS tax assessment letters, if any, to determine that the borrower does not have unsettled obligations to the IRS

8000 Tax Credit Monetization Plan: Still Must Have 3.5% For Down Payment

One of the most popular questions about the plan is “can you use the tax credit for your down payment” – and the answer to that question is “only after you have paid the initial 3.5% down payment yourself”.

If you want to use any part of the tax credit monetization plan as your down payment, you have to have the first 3.5% of your down payment yourself.

Other Resources:

HUD Official Announcement

Official Mortgagee Letter 2009-15

New Home Buyer 8000 Tax Credit Down Payment: Answers To Questions

8000 Tax Credit Questions and Answers

The problem is that many of the typical first time home buyers (age 20-30) are having a tough time finding a job in California. Unemployment in California is currently hovering around 11 percent and that number is expected to creep up through the end of 2009.

From the LA Times:

Although the often volatile unemployment rate dropped to 11% from March’s 11.2%, the Golden State still lost 63,700 jobs during the month. The number of people seeking work has swelled by 842,800 from a year ago, the state Employment Development Department reported Friday.

Economists predict that jobs will continue to disappear for at least the rest of the year. “The unemployment rate will creep up,” said Esmael Adibi, an economist at Chapman University in Orange. “During the summer months, there is a jump in the labor force mainly because of new college graduates or students seeking temporary positions. Clearly, there would not be that many jobs.”
The grim job market — the worst in almost half a century — has put a damper on the graduation season celebrations of students such as UCLA English major Rachel Beezy.

“I’m doing my very best to stay optimistic, but I’m in the same boat as everyone else,” Beezy said. “It’s a horrible time to graduate.”

Before the recession sank its claws in her dreams, the 28-year-old Van Nuys resident hoped to make a career in film production.

So far, she’s sent out 20 resumes without getting a concrete response.
Now, Beezy said, she’d be willing to go back to the retail management job she held before college. Even a $10-an-hour internship would sound attractive.
Campus career center directors and recruiters agree that they’ve never seen competition as tough as it is this spring.

“It’s unprecedented. We see fewer and fewer firms coming to hire graduating students,” said Gary Greener, associate dean for career services at Southwestern School of Law in Los Angeles.

In a normal year about 600 employers come to interview juniors and seniors at USC, said Eileen Kohan, who runs the Career Planning and Placement Center, but recruiting efforts are down about 30%.

“Every firm that has laid off people in the past year didn’t come,” she said. “It’s been an incredibly difficult year.”

State data bear out Kohan’s observations. In March, nearly one in seven job seekers between the ages of 20 and 24 — many of whom are high school and college graduates — were unemployed.

That’s up 40% from a year earlier, and unemployment among people of all ages with bachelor’s or advanced degrees increased by 50%.

The outlook is even worse for teenagers graduating with high school or general educational development diplomas. Unemployment among 16- to 19-year-olds hit 26.2% in March, up from 18.7% a year earlier.

While it is a great time to be a first time home buyer because of the California 8000 tax credit, the 10000 California tax credit and the soon to be announced FHA bridge loan program, it is only a good time to buy a home if you have a job.

And jobs aren’t as plentiful in California as they have been in recent years.

Yes.

And it is starting to hit the national media scene that this is a great deal for California home buyers.

From the Seattle Times: buyers in California will benefit from both the new monetization of the 8000 tax credit and be able to also use the 10000 California tax credit if they qualify.

Bob Rivinius, president and CEO of the California Building Industry Association, said the new FHA credit monetization program “should provide a great combination” with the California credit.

Some first-time purchasers using FHA loans could even qualify for what he called “a trifecta”: They could buy their new house and claim the 10 percent state credit. On top of that they could file for the $8,000 federal tax credit, and then turn the federal credit into instant cash for use on a down payment or for closing costs.

Rivinius said funding for the state tax credit is being depleted fast, but legislation is now pending in Sacramento that would add another $200 million — and that “should allow buyers to receive credits” through the end of the year. The federal $8,000 credit only covers purchases closed by Nov. 30. Unless Congress extends the credit, it will disappear Dec. 1.

Also from the article:

The new bridge loans and cash-advance features of the federal credit may not be available immediately through private lenders, say mortgage-industry leaders. Among the key questions yet to be answered: Where will nondepository mortgage companies get the $8,000 in advance money to provide upfront to buyers?

Although most major banks offer second mortgage programs, the FHA guidelines stipulate that the tax-credit advances cannot be secured by a lien on the property, but only by the tax credit to be received by the purchaser.

Many mortgage companies, which do not have banking deposits to tap, will need a few weeks to prepare documentation for what will essentially be secured personal loans. Plus they’ll need to locate a source of funds for their advances.

In the meantime, however, would-be buyers who believe they are eligible for the federal credit shouldn’t sit around. They should shift into high-gear shopping for a house — the Cinderella date of Nov. 30 is looming — even if they’ll need a bridge loan or cash advance to complete the deal.

HUD has not released the final details of the 8000 tax credit “monetization” plan yet, and as more information becomes available about the short term tax credit down payment bridge loan — or whatever it ends up being, we will be sure to keep you updated.

Whether or not you can “monetize” the 8000 tax credit in the form of a bridge loan has not been made official. But apparently people are making plans and even announcing that they are doing it.

For example, the Memphis Area Home Builders Association have announced that they are ready to go and are now giving out bridge loans for the 8000 tax credit so that people can “monetize” their money now and essentially move into a home with no money down.

From the article:

Officials at the state’s second-largest homebuilders trade association say the program – the first of its kind in the nation – could jumpstart the county’s sagging new home sales by giving potential homebuyers access to money at closing instead of making them wait for their amended tax returns, which can take weeks or months to receive.

MAHBA’s program has been approved by the U.S. Department of Housing and Urban Development for buyers who qualify for Federal Housing Administration loans up to the $271,050 limit, said association president Stephen Hodgkins and executive director Don Glays.

Hodgkins and Glays said MAHBA has allocated $800,000 to its nonprofit arm, MAHBA Foundation Inc., so it will be able to handle 100 of these new loans at any one time. Once a loan is repaid with a buyer’s tax credit, the account is replenished for another applicant.

“This means Memphis Area Home Builders Association (members) can sell homes by loaning people their down payment so they can get in basically for no money down,” said Hodgkins, owner of Oaktree Homes LLC. “But that (loan) is to be repaid by the assignment of their tax credit.”

And more about the person who thought up this program:

The MAHBA program was the brainchild of Glays, who was dismayed to see the seller-assisted down payment program disappear last year. The new rules said buyers couldn’t borrow their down payments and secure them with the property they were purchasing.

But Glays began researching HUD rules and found out that an “anticipated tax credit” was exempt. “Under HUD rules, any anticipated cash coming in can be used as part of the qualifications for underwriting a mortgage,” he said.

This program doesn’t secure the down payment with the property, but rather with the assignment of the tax credit. Glays said if you know you’ve got money coming in from any source, “you can get a mortgage on the premise that you’re going to get that money and it’s going to be liquid for you to use.”

We have yet to hear of anything in California that makes the 8000 tax credit in the form of a bridge loan official.

But we will be sure to keep you posted as we know more. Things change every day and this can easily change.