For awhile, circumstances have existed where the application of the First Time Buyer Tax Credit is unclear.  For example, what about when a couple buy a home and one is a first time buyer and the other is not?   Or, what about when a parent co-borrowers with a child and the parent already owns a home?   Does the person who is buying for the first time qualify?  Do they qualify for the whole credit or only their half?

There is finally some clarification:

IRS Sets New Rules for Tax Credit
The IRS has spelled out guidelines for eligibility for the home buyer credit when co-borrowers purchase a property.

When a home-owning parent of an adult child co-signs for a mortgage and both names appear on the note, the IRS says that under some circumstances, the first-time home buyer can qualify for the whole amount.

The IRS says the parent doesn’t qualify for any portion of the credit, but if the child hasn’t owned a home during the three years preceding the current purchase and can qualify based on income, he or she can be allocated the entire $8,000 credit.

When unmarried individuals co-purchase a home and only one of them is eligible for the credit, then the full $8,000 can be allocated to the eligible buyer.

Source: Washington Post Writers Group, Kenneth R. Harney (12/04/2009)

One piece of the Worker Homeownership, and Business Assistance Act of 2009 just signed into law last week by President Obama, was the expansion of the First Time Buyer Tax Credit to include move up and repeat buyers.  The new Move-Up/Repeat Home Buyer Tax Credit gives qualified homeowners a tax credit of up to $6500, and it is effective as of November 6, 2009.  Like the First Time Home Buyer Tax Credit, you must enter into contract before April 30, 2010 and close by June 30, 2010.   Click the link to check out qualifying details.

A note about getting the cash: while the law allows home buyers to “monetize” the tax credit to help with cash to close, this requires that banks be willing to make short term loans secured by a buyer’s future tax credit.  For reasons you can imagine, banks are not rushing to be the first in line to do this.  I don’t expect to see this happen any time soon.

That said, there are two things you can do to speed up receipt of that money.  First, after you buy, you can amend your 2008 returns and claim the credit as though you bought the home last year.  This may also help those lucky folks whose income in 2009 disqualifies them but who would qualify for the credit based on their 2008 income.  Second, prospective buyers can adjust their withholding in advance to save for a down payment.  Of course, you might have to pay that back later if you don’t buy a home, so only do this if you are really committed to buying.

It  looks like this is gathering momentum…

Senate May Approve Tax Credit Wednesday
The U.S. House and Senate are close to an agreement to extend the home buyer tax credit due to expire at the end of this month.

The Senate is expected to vote Wednesday while the House could approve it later in the week – likely before Friday when the monthly report on the unemployment rate will be released.

The measure that is slated to pass would cover homes under contract by April 30. Also, anyone taking the credit from a home purchased in 2010 would be able to take the credit when they pay their 2009 taxes.

First-time home buyers would be eligible for $8,000, but purchasers don’t have to be first-time buyers. Anyone who has owned a home for at least five years could get a $6,500 credit on a new residence.

Income limitations rise under the new plan with individuals earning up to $125,000 a year and couples earning up to $225,000 eligible. People who earn more would be eligible for smaller credits.

Source: The New York Times, Jackie Calmes (11/4/2009)

For those of you who thought you may have missed out, momentum appears to be building to extend the $8k tax credit.

There are two things that have made this extremely appealing to buyers.  First, it is a refundable tax credit.  That simply means that you get back $8k, even if you paid (or owe) less than that in taxes.  Second, you can amend your 2008 tax returns to claim the credit as if you had purchased the home in 2008, making it possible to get your money faster.

Here’s a link to a site to review the details.  Any extension could also change the amount or terms, so stay tuned. I’ll update as more news come through.

In a sort of reversal of its former reversal, HUD announced that it would allow FHA approved lenders to monetize the tax credit to allow first time buyers to “apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate.”

This is a modification of the original announcement that stated the credit could be used to meet the 3.5% FHA down payment requirement. In its new form, it may help some people.  A buyer could certainly take advantage of that to write an offer that didn‘t ask the seller for help with closing costs.  Since this type of concession is common practice in our market where most buyers are strapped for cash, not asking the seller to put out extra money might set the buyer apart from the crowd.  Or the funds could be used in addition to any seller credit to buy the interest rate down further making monthly payments more affordable.

However, remember that it takes everybody a little while to figure out how to implement these new rules, and in this case, figuring out the details could be a little complicated.

In October of last year, Congress and HUD banned the long running Nehemiah down payment assistance program.  At a time when the lending rules had begun eliminating thousands of buyers from a market that desperately needed their participation, this was an ill-conceived and poorly reasoned response to the mortgage crisis.  In their panic to put out the incipient blaze, Congress grabbed the gas can instead of the water bucket.

But a new bill–H.R. 600–has been announced in Congress to reinstate the Nehemiah program, and there is a ground swell of support.  At a time when policies to stabilize real estate values are short on substance and long on hot air, this program offers a solution that does not rely upon any government or tax payer subsidies.  That alone merits attention.

So go and make your voice heard and write your senators and congresspeople to encourage them to support H.R. 600.   Unlike all the legislative ideas that haven’t worked to fix real estate, Nehemiah has helped nearly half a million people since 1998.  Check it out.

Readers will take note that I have recently been writing about the remaining options for 100% financing. Back in August, I wrote about the new California Housing Finance Agency’s (CalHFA) Community Stabilization Home Loan Program (CSHLP) which…

“began in July of this year and was funded by $200 mil in tax exempt bonds. It provides 100% financing at low 30 year fixed rates to qualified first-time buyers who select a property from a list of foreclosed homes. The list includes properties owned by lenders who have agreed to partner with CalHFA to offer reduced prices.”

You have to be a first time buyer and purchase a property from their list, but if you meet the guidelines and qualify, you get to finance 100% of the purchase price at a 5.5% 30 year fixed rate. Sweet!

The SMART Loan Program From CalHFA

Now, CalHFA has announced another first-time buyer program: the SMART Loan Program (I’m not sure what the acronym stands for). CalHFA has either bought or foreclosed on some additional properties because unlike the CSHLP list above, these are homes they own. Check that list of properties here.

In both cases, qualified first-time buyers need zero down payment and there is no minimum contribution of funds required. You can even combine CalHFA’s loans with other down payment assistance programs as available. There are sales price limits however; check those out here.  And there income limits based on family size; check those out here.

And if you have further question, email or call me.  If you qualify, I can get your approved quickly!