Frequently Asked Questions About the Home Buyer Tax Credit
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.The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.
The final version of the HVCC, Home Valuation Code of Conduct, has been released and takes effect on 5/1/2009. Here are the highlights in a nutshell.
The HVCC applies only to Fannie Mae and Freddie Mac loans. These rules do not apply to loans that will be kept in house, FHA loans, or appraisals for non-lending purposes.
There are some important distinctions to be made here. Lenders do not have to use AMCs (Appraisal Management Companies). As long as the appraiser selection is separate from the loan processing folks, a lender can pick whoever they want. That pick may be an AMC or an appraisal company.
The point is that lenders have options. In house appraisers can still be used if you meet the conditions of the HVCC. Quality appraisers can be used so long as the individual that selects them is independent of the loan process.
The biggest impact is on the brokers. No more “comp checks”. They will have to wait until the lender has the appraisal done before they find out that the home is worth $100,000 less than the homeowner’s estimate.
Most of the requirements are good. The IVPI, quality control, and independence are all big pluses for the profession. The exclusion of the brokers, the inability for direct communications, and the requirement to provide the homeowner with the appraisal 3 days before close will all lead to problems. While the communications issue will slow down the process, the 3 day requirement will put more pressure on turn time. For an accurate appraisal, there needs to be enough time to verify information with agents, cities, and counties. Too quick turn times can result in poor appraisals.
New Tax Incentives for Homebuyer’s Federal & California
According to the Sacramento Bee article on February 20th there are more goodies to give first time homebuyer’s incentives to purchase a home right away! Tax breaks to stimulate buying are back. California’s new budget gives a $10,000 tax credit to people who buy a new house soon. That coupled with the Federal tax credit signed last Tuesday to first time homebuyer’s for $8,000 give the potential to take $18,000 off their taxes. This applies to new California residences purchased between March 1, 2009 and March 1, 2010. The state will take $3,333 off a buyer’s state taxes starting in the year of purchase and for the two following years.
Check with your accountant to verify the details of the above incentives.
Final score: $8,000 for homebuyers
First-time purchasers get a tax credit windfall if they buy before December.
AMERICA'S MONEY CRISIS
There's a nice windfall for some homebuyers in the economic stimulus bill awaiting President Obama's signature on Tuesday. First-time buyers can claim a credit worth $8,000 - or 10% of the home's value, whichever is less - on their 2008 or 2009 taxes.
A big plus is that the credit is refundable, meaning tax filers see a refund of the full $8,000 even if their total tax bill - the amount of witholding they paid during the year plus anything extra they had to pony up when they filed their returns - was less than that amount. But there has been a lot of confusion over this provision. Adam Billings of Knoxville, Tenn. wrote to CNNMoney.com asking:
"I will qualify as a first-time home buyer, and I am currently set to get a small tax refund for 2008. Does that mean if I purchased now that I would get an extra $8,000 added on top of my current refund?"
The short answer? Yes, Billings would get back the $8,000 plus what he'd overpaid. The long answer? It depends. Here are three scenarios:
Scenario 1: Your final tax liability is normally $6,000. You've had taxes withheld from every paycheck and at the end of the year you've paid Uncle Sam $6,000. Since you've already paid him all you owe, you get the entire $8,000 tax credit as a refund check.
Scenario 2: Your final tax liability is $6,000, but you've overpaid by $1,000 through your payroll witholding. Normally you would get a $1,000 refund check. In this scenario, you get $9,000, the $8,000 credit plus the $1,000 you overpaid.
Scenario 3: Your final tax liability is $6,000, but you've underpaid through your payroll witholding by $1,000. Normally, you would have to write the IRS a $1,000 check. This time, the first $1,000 of the tax credit pays your bill, and you get the remaining $7,000 as a refund.
To qualify for the credit, the purchase must be made between Jan. 1, 2009 and Nov. 30, 2009. Buyers may not have owned a home for the past three years to qualify as "first time" buyer. They must also live in the house for at least three years, or they will be obligated to pay back the credit.
Additionally, there are income restrictions: To qualify, buyers must make less than $75,000 for singles or $150,000 for couples. (Higher-income buyers may receive a partial credit.)
Applying for the credit will be easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. Taxpayers who have already completed their returns can file amended returns for 2008 to claim the credit
VA Home Loans - A Quick Guide For Homebuyers and Real Estate Professionals (On-Line Version)
WHY A VA LOAN? The more you know about our home loan program, the more you will realize how little "red tape" there really is in getting a VA loan. These loans are often made without any downpayment at all. Aside from the veteran's certificate of eligibility and the fact that the appraiser is assigned by VA, the application process is not much different than any other type of mortgage loan. And if the lender is approved for automatic processing and the Lender Appraisal Processing Program (LAPP), as more and more lenders are now, a buyer's loan can be processed and closed by the lender without waiting for VA's approval of the credit application or for VA to review the appraisal. Lenders are also able to use VA recognized automated underwriting systems, such as Loan Prospector and Desktop Underwriter, to facilitate the underwriting process. FIVE EASY STEPS TO A VA LOAN
1. Apply for a Certificate of Eligibility (COE). A veteran can obtain a COE by completing VA Form 26-1880, Request for a Certificate of Eligibility, and mailing it, along with proof of military service, to the eligibility center (see office list at back of pamphlet). Also, veterans who have already begun the loan application process with a lender may request the lender obtain a COE through webLGY, which is accessed through the VA portal. More information about this online system can be found at our website which is: www.homeloans.va.gov.
2. Decide on a home to buy and sign a purchase agreement.
3. Order an appraisal from VA. (Usually this is done by the lender.) Ordering an appraisal can be done via the Internet using TAS (The Appraisal System). This is a centralized system that allows lenders easy and quick access to order an appraisal.
4. Apply to a mortgage lender for the loan. While the appraisal is being done, the lender can be gathering credit and income information. If the lender is authorized by VA to process loans on the automatic basis (and approx. 99 percent of all VA loans are processed this way), the loan can be approved and closed upon receipt of the appraised value determination without waiting for a VA review of the credit application. VA has also approved the use of several automated underwriting systems for lenders to use in connection with VA loans. The two main systems are Loan Prospector and Desktop Underwriter. For loans that must be approved by VA, lenders send the credit package to VA. VA staff will then review it and notify the lender of the decision.
5. Close the loan and move in.
VA FINANCING -A GOOD DEAL FOR VETERANS More than 27 million veterans and service personnel are eligible for VA financing. Even though many veterans have already used their loan benefits, it may be possible for them to buy homes again with VA financing using remaining or restored loan entitlement. Before arranging for a new mortgage to finance a home purchase, veterans should consider some of the advantages of VA home loans:
WHAT IS A VA-GUARANTEED LOAN? These loans are made by a lender, such as a mortgage company, savings and loan, or bank. VA's guaranty on the loan protects the lender against loss if the payments are not made, and is intended to encourage lenders to offer veterans loans with more favorable terms. The amount of guaranty on the loan depends on the loan amount and whether the veteran used some entitlement previously. With the current maximum guaranty, a veteran who hasn't previously used the benefit may be able to obtain a VA loan up to $417,000 ($625,500 for loans in Hawaii, Alaska, Guam and U.S. Virgin Islands), depending on the borrower's income level and the appraised value of the property. Your VA Regional Loan Center can provide more details on guaranty and entitlement amounts. WHAT CAN A VA LOAN BE USED FOR?
WHO IS ELIGIBLE? Veterans with active duty service, that was not dishonorable, during World War II and later periods, are eligible for VA loan benefits. World War II (September 16, 1940 to July 25, 1947), Korean conflict (June 27, 1950 to January 31, 1955), and Vietnam era (August 5, 1964 to May 7, 1975) veterans must have at least 90 days of service. Veterans with service only during peacetime periods and active duty military personnel must have had more than 180 days of active service. Veterans of enlisted service which began after September 7, 1980, or officers with service beginning after October 16,1981, must in most cases have served at least 2 years. Gulf War. Basically, reservists and National Guard members who were activated on or after August 2, 1990, served at least 90 days and were discharged honorably, are eligible. VA can assist with eligibility questions. Members of the Selected Reserve, including National Guard, who are not otherwise eligible and who have completed 6 years of service and have been honorably discharged or have completed 6 years of service and are still serving, may be eligible. Contact the VA Eligibility Center to find out what is needed to establish eligibility. Reservists will pay a slightly higher funding fee than regular veterans. (See paragraph entitled "Costs of Obtaining a VA Loan.") HAD A VA LOAN BEFORE? Remaining Entitlement Veterans who had a VA loan before may still have "remaining entitlement" to use for another VA loan. The current amount of entitlement available to each eligible veteran is $36,000. This was much lower in years past and has been increased over time by changes in the law. For example, a veteran who obtained a $25,000 loan in 1974 would have used $12,500 guaranty entitlement, the maximum then available. Even if that loan is not paid off, the veteran could use the $23,500 difference between the $12,500 entitlement originally used and the current maximum of $36,000 to buy another home with VA financing. For certain loans in excess of $144,000, the basic $36,000 entitlement can be increased to a maximum guaranty equal to 25 percent of the Freddie Mac conforming loan limit for a single family residence, minus any previously used entitlement. Most lenders require that a combination of the guaranty entitlement and any cash downpayment must equal at least 25 percent of the reasonable value or sales price of the property, whichever is less. Thus, in the example, the veteran's $23,500 remaining entitlement would probably meet a lender's minimum guaranty requirement for a no-downpayment loan to buy a property valued at and selling for $94,000. The veteran could also combine a downpayment with the remaining entitlement for a larger loan amount. Restoration of Entitlement Veterans can have previously-used entitlement "restored" to purchase another home with a VA loan if:
HOW TO GET A VA LOAN VA Appraisal Because the loan amount may not exceed VA's estimate of the value of the property, the first step in getting a VA loan is usually to request an appraisal. Although anyone (buyer, seller, real estate personnel or lender) can request a VA appraisal, usually this is done by the lender via the Internet using TAS (The Appraisal System). The appraiser will send a bill for his or her services to the requester according to a fee schedule approved by VA. To simplify things, VA and HUD/FHA (Department of Housing and Urban Development/Federal Housing Administration) generally use the same appraisal forms. It is important to recognize that while the VA appraisal estimates the value of the property, it is not an inspection and does not guarantee that the house is free of defects. Homebuyers should be encouraged to carefully inspect the property themselves, or to hire a reputable inspection firm to help in this area. VA guarantees the loan, not the condition of the property. Application The application process for VA financing is no different from any other type of loan. In fact, the VA application form is the same as that used for HUD/FHA and conventional loans. The mortgage lender verifies the applicant's income and assets, and obtains a credit report to see that other obligations are being paid on time. If all is well and the appraised value of the property is enough to cover the loan needed, the lender, in most instances, can then close the loan under VA's automatic procedure. Only about 1 percent of VA loan applications have to be submitted to a VA office for approval before closing.REQUIREMENTS FOR LOAN APPROVAL To obtain a VA loan, the law requires that:
COSTS OF OBTAINING A VA LOAN Funding Fee
Other Closing CostsReasonable closing costs may be charged by the lender. These costs may not be included in the loan. The following items may be paid by the veteran purchaser, the seller, or shared. Closing costs may vary among lenders and also throughout the nation because of differing local laws and customs.
No commissions, brokerage fees, or "buyer broker" fees may be charged to the veteran buyer. NEED MORE INFORMATION? Veterans seeking more detailed information concerning the VA home loan program may request VA Pamphlet 26-4, VA-Guaranteed Home Loans for Veterans, or VA Pamphlet 26-6, To the Home-Buying Veteran, from VA. Remember, VA-guaranteed financing is a benefit which Congress intended eligible veterans should have. If you are a veteran home buyer or know of one, it makes sense to look into the VA loan program as a good way to finance a home purchase.
To locate a VA facility, or to obtain more information on the VA Loan Guaranty program, visit www.va.gov and click on Facilities Locator. VA Offices with Loan Activities
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Reviewed/Updated Date: January 28, 2008
NEW YORK - Pending home sales unexpectedly increased in April to the highest reading since October, an industry group said Monday, but they remain more than 13 percent below a year ago.
The National Association of Realtors’ seasonally adjusted index of pending sales for existing homes rose to 88.2 from a March reading of 83.0, the lowest since the index was started in 2001. The index stood at 101.5 in April 2007.
Wall Street economists polled by Thomson/IFR had predicted the index would remain steady at 83.
A reading of 100 is equal to the average level of sales activity in 2001.
The April index in the West climbed 8.3 percent from March and is 4 percent higher than a year ago. In the Midwest, the index jumped 13 percent, but is still lower than in 2007. The South posted a 4.6 percent gain, while the Northeast index declined 1.9 percent.
NAR Chief Economist Lawrence Yun noted that pending sales contracts have ticked up in areas with the largest price declines such as Detroit and Las Vegas.
“Bargain hunters have entered the market en masse,” he said. “Sharp price reductions are leading to a quicker discovery of price equilibrium points.”
Yun forecasts that the median price of an existing home will drop 8.4 percent in the first half of the year before stabilizing. In 2009, prices will rise 4.4 percent to $213,900, he predicts.
Existing home sales this year are expected to total 5.40 million and then increase to 5.74 million next year, Yun said.
Historic
Five-Year Mortgage Rate Freeze Looms
Bush Mortgage Plan Will Freeze Certain Subprime Interest Rates for 5 Years
WASHINGTON (AP) -- The Bush administration has hammered out an agreement with industry to freeze interest rates for certain subprime mortgages for five years in an effort to combat a soaring tide of foreclosures, congressional aides said Wednesday.
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These aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of as much as seven years and industry arguments that the freeze should only last one to two years.
Another person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.
The administration said that President Bush will speak on the agreement at the White House on Thursday and the Treasury Department announced that Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson would hold a joint news conference Thursday afternoon with officials of the mortgage industry.
Treasury also announced that there would be a technical briefing to explain more of the details of the proposal.
Paulson, who has been leading the effort to craft a plan, said on Monday that the program would only be available for owner-occupied homes -- as a way to make sure that the break is not granted to real estate speculators.
The plan emerged from talks between Paulson and other banking regulators and banks, mortgage investors and consumer groups trying to address an avalanche of foreclosures that are feared as an estimated 2 million subprime mortgages reset from lower introductory rates to higher rates.
The higher rates in many cases will boost monthly payments by as much as 30 percent, making it extremely difficult for many people to keep current with their loans.
The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate.
Through October, there were about 1.8 million foreclosure filings nationwide, compared with about 1.3 million in all of 2006, according to Irvine, Calif-based RealtyTrac Inc. With home loan defaults still rising, the trend is expected to worsen next year.
The plan represents an about-face for Paulson, who until recently had insisted that the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced that the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed along the lines of a plan put forward in October by Sheila Bair, head of the Federal Deposit Insurance Corp.
Paulson and other federal regulators began holding talks with some of the country's biggest mortgage lenders, mortgage service companies, investors who hold mortgage-backed securities and nonprofit groups that provide counseling for at-risk homeowners.
Under the typical subprime loan, those offered to borrowers with spotty credit histories, the rates for the first two years were at levels around 7 percent to 9 percent. But after two years, those rates were scheduled to reset to levels around 9 percent to 11 percent.
For a typical $1,200 monthly mortgage payment, the reset could add another $350 to the monthly payment, greatly raising the risks of loan defaults by homeowners struggling with the current payment.
The wave of mortgage foreclosures threatened to make the most severe slump in housing even worse by dumping more foreclosed properties onto an already glutted market, further depressing home prices and shaking consumer confidence.
The deepening housing slump has already roiled financial markets, starting in August, as investors grew increasingly concerned about billions of dollars of losses being suffered by banks, hedge funds and other investors.
The administration plan is designed to deal with the crisis by allowing subprime borrowers who are living in their homes and are current on their payments to avoid a costly reset for five years. The hope is that by that time the housing downturn will have stabilized, clearing out the glut of unsold homes and halting the steep slide in prices that is occurring in many parts of the country.
With sales and prices once again rising, the expectation is that homeowners will be able to renegotiate their current adjustable rate mortgages into a more affordable fixed-rate plan.
The housing crisis has become an issue in the presidential race with Democrats Hillary Rodham Clinton and John Edwards putting forward their own proposals this week that would go further than the administration.
Mark Zandi, chief economist for Moody's Economy.com, said while the administration plan is a good first step, eventually the government will have to go further because of the size of the problem and the threat to the economy.
"This is the most serious housing downturn we have seen in the post World War II period," he said. "It is a threat to the broader economy. The risks of a recession are very high."
Almost everyone has herd that the mortgage industry is experiencing a credit crunch and that the last two months the Federal Reserves has lowered both its fund rate and the discount rate. The fund rate is where banks can go to the discount window of the Federal Reserve. They can and did interject money into the system this past two months. They offer this to banks to allow more money into the banking system, and lowering the funds rate allows them to borrow this money at cheaper rates. They want to encourage banks who are temporarily experiencing liquidity problems to borrow. This will allow the banks to continue to offer money to the commercial makets ie the secondary market where mortgages are sold. The second is the discount rate. This is what really helps the consumer, however it helps only those loans which are tied to the prime rate. These loans are mostly credit card debt and equity lines of credit. This is considered lowering short term rates, and mortgages are considered long term instruments. Adjustable mortgages are tied to instruments like the Libor, treasury, and others. These are what make adjustable mortgages rates to change, not the prime rate. What this means is that the discount rate doesn't lower mortgage rates for the most part. It is possible that the Fed's could lower short term rates, ie. the discount rate, and the long term rate on mortgages increases. Mortgage rates are more closely inline with the 10 year bond, and the bond markets closely watch commodities like oil etc. along with the US dollar. The bond market looks at these to determine inflation worries. When the economy starts to decline, the Federal Reserve lowers rates to head off a recession, and to make sure there is enough liquidity in the market for banks to loan out money. If the economy slows enough, and the Fed's lower several times, this may eventually bring down long term rates ie. mortgage instruments, as long has inflation worries are in check.
What I try to do is monitor the dynamic market forces, as to better suggest to my clients wether or not to refinance, or when is a good time to lock in a rate when they are purchasing a home. I would be happy to discuss this with anyone who would like further discussion. I know this is a brief explanation and there are more variables, but this is a starting point. Please feel free to contact me with questions.
On my web I also have industry experts give there opinions. I have the daily rate lock advisor which gives a daily market update as to help you make a decision on when to lock. I offer this to may clients, and realtors at no charge. You may visit my web each day to get an informed market update.
Jim Sroka
www.homeloanez.com
With all of the volatility on the mortgage industry, there are things that an agent and buyer can do to protect themselves. Mortgage Companies are having more trouble taking there loans and selling them on the secondary market. The word sub-prime is used often and is synonymous with "toxic waste" to wall street, who buys loans on the secondary market. This has affected all types of buyers, even with perfect credit. This is primarily loans that are over $417,000, as these loans are sold and backed by FANNIE MAE and FREDDIE MAC, or any sub-prime lenders. I have heard the lenders are canceling there loan commitments at the last minute leaving the buyer with no loan and no options for a loan.
During this tumultuous mortgage crisis, I advise the buyer not to remove there loan contingency until at least to when there loan docs are drawn. I understand this makes it extremely uncomfortable for the sellers, as they are making decisions on possible purchasing a new home for themselves. Like the buyers on there home, they too should not remove there loan contingency. Additionally, the buyer and agent needs a lender who will effectively communicate and update all parties in the transaction. The buyer, and seller need to know what type of loan and how this type of loan may affect their sale or purchase. The buyer needs to ask for a loan commitment from the lender. To do this, the buyer needs to expedite the paperwork and get it to there lender as quickly as possible. This will help there lender get the loan to underwriter quicker. I believe shorter escrows will also help in the volatile mortgage market.
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