VA home loans FHA Loans ... News Updates and Commentary

We have come upon a Way to use your Tax Credit for your down payment

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The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.

1. Who is eligible to claim the 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 January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

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.

3. How is the amount of the tax credit determined?
   The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

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. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you 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 that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, and manufactured homes. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

More to come next week. Until then have fun!

Ok, here it is… despite various efforts to stop the foreclosures, mortgage defaults are still on the rise. 87,000 in February, up from 68,000 in January, of those 55,000 were considered prime loans. Which, of course, means defaults on otherwise strong borrowers are now outpacing bad borrowers. How is that possible you ask? The subprime borrowers started defaulting in 2007, bailing on their responsibility early; they have already been weeded out.

Here is where it gets interesting… What sort of loans is everybody doing these days? FHA. Of course. Now FHA requires 3 years out of default. So all those people who bailed at the first sign of trouble will be coming back into the market in 2010. Last check rates were 5% and they are now purchasing their homes for $0.50 on the dollar. All those who have struggled and held on to their responsibility till the last minute? They won’t be able to get back into the market until a much later date, which means they most likely won’t be able to take advantage of the low rates, and most likely not be able to take advantage of the low prices.