Texas Home Mortgage Loans and Refinance

2009-05-25T14:18:00.000-07:00

Time to Refinance?

Between the housing slump and the credit crunch, mortgage lenders last year were as underworked as the Maytag repairman. But now business has picked up nicely, thanks to rates that recently dipped to around 5% on a 30-year fixed-rate mortgage. If you currently have a loan with a rate higher, say, 6% or an adjustable-rate mortgage ready to reset, this could be the time to refinance.

Despite the Federal Reserve’s efforts to thaw credit and nudge mortgage rates lower by cutting short-term lending rates, fixed mortgages stayed at the 6% to 6.5% range for much of 2008. But just before Thanksgiving, the Federal Reserve announced that it would purchase $100 billion of mortgages from Fannie Mae, Freddie Mac and the Federal Loan Banks, and $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae.
That moved the markets to bid up bond prices, which lowered mortgage rates dramatically. In mid December, the Fed lowered the rates again and announced plans to pump money into the system, including buying large quantities of mortgage-related bonds and longer-term Treasure bonds. By mid January, rates briefly fell below 5%. A few factors are keeping the rates low, the economy is still slow, inflation is waning and the Fed’s mortgage-buyback is still getting under way.

Will a refi repay?

If you have a fixed rate-mortgage and think you will save money by refinancing, run the numbers using the calculators at www.HomeLoansTXOnline.com. If you don’t plan to stay in your home long enough to recoup the cost of a refi, it’s probably not worth it. Closing cost typically run 2% to 4% of the loan amount ($4,000 to $8,000 on a $200,000 loan).
If you have an ARM about to reset, the math is trickier. The indexes that underlie rate resets on ARMs have dropped along with the 30-fixed rate. If you have an ARM tied to the one-year Treasure index and were due for a rate reset in mid January, you could anticipated a new rate of 3.25% (a one-year Treasury index value of 0.43% plus a typical margin of 2.75 percentage points).

The London Interbank Offered Rate (LIBOR), which rose to record highs this pass fall as banks kept a tight rein on lending, hasn’t been so tame. In early January, an ARM based on the one-year LIBOR could have reset at 4.25% (an index value of 1.92% plus a margin of 2.25 points).
Some loans have a downward as well as an upward cap on adjustments. ARMs with an initial fixed-rate period of three years that convert to a one-year ARM typically have a cap of two percentage points – that is, each adjustment can’t exceed two points. ARMs with rates fixed for the first five, seven, and ten years typically have a cap of 5 points on the first adjustment and two points thereafter.

Before you shop, check your mortgage contract to see what index your ARM is based on and the margin that’s added to get the full rate. To find the current index rate, visit www.hsh.com. With the latest loan information and the balance of your mortgage (check your latest statement), you can estimate your new payment.

If your ARM is tied to a Treasury index, you may want to refinance sooner than later. On the other hand, the LIBOR still has some room to decline, so you may want to sit tight through the reset.

What about Jumbos?

Opportunities for borrowers with jumbo mortgages (more than $417,000) aren’t as attractive. In mid January, HSH reported that the average 30-year fixed rate was 5.32% on a “conforming” jumbo and 6.72% on a traditional jumbo.

What is the difference? For 2009 in 59 metro areas, Fannie Mae and Freddie Mac guarantee loans worth up to 115% of the metro area’s median home price; up to a maximum of $625,000 (the limit is higher in Alaska and Hawaii). Anything below that limit is conforming, and anything above it is traditional.

Will You Qualify

You’ll have to meet tougher lending standards to qualify for a new mortgage. You will need to be prepared to provide full documentation for two years worth of income and reserves. The traditional debt-to-income ratios apply, your housing expenses shouldn’t exceed 28% of your monthly pretax household income, and your total debt payments shouldn’t exceed 36%.
Most lenders will require you to have a minimum of 5% to 10% equity in your home to refinance into a conforming loan and 15% to 20% if you want to take out cash (Texas properties require more than 20%, 10% to 15% equity to refinance into a conforming jumbo and 20% to 25% if you want to take out cash). The more equity you have in your home and the better your credit score, the better the rate.

Borrowers with less-than-stellar credit scores or who have as little as 3.5% equity may qualify to refinance with FHA. Those who are already delinquent on their mortgage payment, or who soon may be should check out FHA’s FHASecure and hope for Homeowner programs.

2009-05-16T19:01:00.000-07:00

Determining Whether or Not You Should
Refinance Your Mortgage

If you have a fixed-rate mortgage and mortgage rates are falling, it only makes sense to considertrying to refinance at a lower rate. But as with most things in finance, it isn’t always a simple answer. Refinancing can certainly make sense, but it also cost money to refinance a mortgage. Depending on your specific situation, a refinance may actually end up costing you more money instead of saving money.

Adjustable Rate Mortgages

If you have an adjustable rate mortgage and your rate has reset to higher than the initial low rate, it is definitely worth looking into a refinance. The good news is that adjustable rate mortgages can change their interest rates over the term of the loan, and when rates are going down, that can be good. But the real problem is that even so, you’re still likely to find that you’re paying more than you would be with a fixed-rate mortgage.

Fixed-Rate Mortgages

The old standard when it comes to home loans, a fixed-rate mortgage can be one of the best ways to finance the purchase of a home. This is because the interest rate doesn’t change over time, which means your payment remains the same. This payment stability is great, but there are times it can be a drawback.
If mortgage rates fall in the future, you may find yourself paying more interest than what you could get on a current mortgage. This could mean throwing money away towards interest that you could possibly avoid. But the reverse is also true. If you lock in a fixed-rate that’s at a relative low point, if rates go up in the future, you’re realizing significant savings over others who may be getting current loans at the higher rates.

Consider Costs

When considering whether or not to refinance your mortgage, you want to realistically look at how long it would take to break even if you were to refinance.
For instance, let’s say a 1% lower interest rate would decrease your monthly mortgage payment by $100. That’s nothing to sneeze at, but let’s assume your closing costs on the refinance total $3000. That means you need to stay in the house for 30 months just to break even on the refinance. If you plans were to possibly move in three years or less, you can see where a refinance may actually cost you.

Amount of Equity

Another thing to consider is how much equity you have in the home. Most banks will require 20% equity in order to refinance your mortgage. It may still be possible to refinance without that much equity, but you’ll likely to get the best deal if you have at least 20% equity.
In addition, if you’ve been living in the house for a while and built up a decent amount of equity, you can possibly save even more money since you may be able to refinance an amount loan amount. This can reduce your monthly payments since you’re now paying back a smaller loan.

Don’t Forget About New Terms

One thing many people forget is that refinancing will also extend the term of the loan again. If you’ve been making payment on your 30-year fixed mortgage for the past 10 years, you only had 20 to go. But if you refinance, if you choose another 30-year mortgage, you’re back to the beginning. But what some people do is actually refinance from a 30-year to a 15-year if they already have a number of years of payments under their belts.

Final Consideration

As you can see, there are a number of things to consider before rushing to the bank. Yes, lower mortgage rates are good, and they can save you money, but it isn’t quite that easy. You need to make sure you’ll actually live in the house long enough to benefit, and determine if possibly changing the loan terms is worth it. Not only that, but your credit history is even more important than ever. If your credit isn’t near perfect or you have some negative marks on your report, you may find that you can’t even take advantage of the best rates.
So, if lower rates have you interested in a refinance, it’s worth taking a look at. Just make sure that you’re not being drawn in by the rate alone and that you’re really going to reap the rewards of a refinance.

$8000 First-Time Home Buyer Income Tax Credit

2009-05-14T15:45:00.000-07:00

$8000 First-Time Home Buyer Income Tax Credit

Frequently Asked Questions
About the First-Time Home Buyer Tax Credit

1. Will homebuyers who made purchases last year between April 9 and December 31, 2008 be eligible for the new credit? Or is the old $7,500 credit which currently needs to be repaid, going to also be made exempt from repayment?

No. They will still be covered by the original $7,500 tax credit enacted last year for first-time homebuyers. They may however may not have to repay this amount if the repayment provision in the new home buyer tax credit is made retroactive (i.e. is back dated to April 9, 2008). This detail is still to be finalized given the bill was only approved recently and the IRS has to make a ruling.

2. Can I claim the $8,000 home buyer tax credit in 2008 returns?

There is some confusion regarding this. Some sites are saying you can, while others are not sure. Given the bill was approved February 17 the government is keen to spur housing and spending it is more likely that you can include it in your 2008 returns. Again, a final IRS ruling is needed to confirm this. In any case you do have other options of claiming this credit in 2009. You can file and an amendment to your 2008 returns once the IRS rules on the credit availability or adjust your paycheck withholding for the credit amount so that your take home pay for the rest of 2009 is higher (for example, $8,000 over 8 months, is an extra $1,000 in your monthly paycheck.

3. 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. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.

4. What types of homes will qualify for the tax credit?

Any home purchase by an eligible first-time home buyer will qualify for the credit, provided that the home will be used for a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses and condominiums, manufacture homes (also known as mobile homes) and houseboats.

5. Instead of buying a new home from a homebuilder, I have hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?

Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after April 9, 2008 and before July 1, 2009.

In contrast, the newly-constructed home bought from a home builder, eligibility for the tax credit is determined by the settlement date.

6. What is the “modified adjusted gross income?

Modified adjusted gross income or MAGI is defined by the IRS. To find it, a tax payer must first determine “adjusted gross income” or AGI. AFI is the total income for a year minus certain deductions (known as “adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education credit.

7. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?

Possibly. It depends on your income. Partial credits of less than $7,500 are available for some taxpayers whose MAGI exceed the phase-out limits. The credit becomes totally unavailable for individual taxpayers with a modified adjusted gross income of more than $95,000 and for married taxpayers filing joint returns with an AGI of more than $170,000.

8. Can you give me an example of how the partial tax credit is determined?

Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase-out to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0 the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $7,500 by 0.5. The result is $3,750.

Here is another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.625 from 1.0, the result is 0.35. Multiplying $7,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,625.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstance.

9. Does the tax credit amount differ based on tax filing status?

No. The credit is in general equal to $7,500 for qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as “married filing separately” (in effect, filing two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.

10. Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500?

In general, that tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited to $7,500. For most first-time home buyers purchase a home priced less than $75,000, the credit will equal 10% of the purchase price.

11. I heard that the tax credit is refundable. What does that mean?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all the amount of the refundable tax credit.

For example, if the qualify home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had a tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualifies for the $7,500 home buyer tax credit. As a result, the tax payer would receive a check for $6,500 ($7,500 minus the $1,000 owed).

12. What is the difference between a tax credit and a tax deduction?

A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the mount of income that is taxed. Using the same example, assume the taxpayer the taxpayer is in the 15 percent tax bracket and woes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer’s tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.

13. Can I claim the tax credit if I finance the purchase of my home under mortgage revenue bond (MRB) program?

No. The tax credit cannot be combined with the MRB home buyer program.

14. I am not a U.S. citizen. Can I claim the tax credit?

Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

15. Des the credit have to be paid back to the government? If so what are the payback provisions?

Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

16. Why must the money be repaid?

Congress’s intent was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first-time home buyers, this will maximize the stimulus for the housing market and the economy, will help stabilize home prices, and will increase home sales. The repayment requirement reduces the effect on the Federal Treasury and assumes that home buyers will benefit from a stabilized and, eventually, increasing future housing prices.

17. Because the money must be repaid, isn’t the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?

Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%, that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compare to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability in the year it is claimed.

18. If I am qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?

Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 return instead for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

19. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on which year my credit amount is larger?

Yes. If the applicable income phase-out would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

20. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return?

Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up the amount of credit) will enable the future home buyer accumulate cash by raising his/her take home pay. This money can then be applied to the down payment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the credit purchase does not occur, then individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Fannie Mae, Updates to Multiple Mortgages to the Same Borrower Policy, Reserve Requirements, Reserves Definition, and Form 3170

2009-03-01T19:11:00.000-08:00

Fannie Mae, Updates to Multiple Mortgages to the Same Borrower Policy, Reserve Requirements, Reserves Definition, and Form 3170

Fannie Mae is making some changes for multiple loans to one borrower. “Fannie Mae is committed to providing financing opportunities for high-credit quality, bona fide investors. Experienced nvestors play a key role in the housing recovery and Fannie Mae’s continued support for investor borrowers is consistent with its mission to provide stability, liquidity, and affordability to the nation’s housing system”.

Fannie Mae is modifying this policy to allow investor and second home borrowers to own five to ten financed properties if they meet certain eligibility and underwriting and delivery requirements as outlined in this Announcement.

Eligibility Requirements

Eligibility Requirements: Five to Ten Financed Properties

Transaction Type

Number

of Units

Maximum

LTV/CLTV/HCLTV

Minimum

Credit Score

Second Home or Investment Property

Purchase

1 Unit

75/75/75%

720

Limited Cash-Out Refinance

1 Unit

70/70/70%

720

Investment Property

Purchase and

Limited Cash-Out Refinance

2-4 Unit

70/70/70%

720

Reserve Requirements for Second Homes, Investment Properties, and

Multiple Financed Properties

· When the borrower will own five to ten financed properties (including the subject

property) the reserve requirements are:

Ø - two months of reserves on the subject property if it is a second home,

Ø six months of reserves on the subject property if it is an investment property, and

Ø six months of reserves on each other financed second home or investment property.

· When the borrower will own five to ten financed properties (including the subject

property) the reserve requirements are:

Ø two months of reserves on the subject property if it is a second home,

Ø six months of reserves on the subject property if it is an investment property, and

Ø six months of reserves on each other financed second home or investment property.

Jumbo Mortgage Loans

2008-12-21T13:16:00.000-08:00

Jumbo Mortgage Loans

A jumbo mortgage is a mortgage with a loan amount that is above the industry-standard definition of conventional conforming limits. This standard is set by the two largest secondary market lenders, Fannie Mae and Freddie Mac. Loans above the standard conforming limits may be offered by seller services of wholesale institutions, as well as to Wall Street conduits who provide warehouse financing/lines for mortgage lenders. Other large investors, such as insurance companies and banks, are utilized to fill the need, with maximum mortgage amounts going to the $1 million or $2 million dollar range. A loan in excess of $650,000 is referred to as a super jumbo mortgage. The average interest rates on jumbo mortgages are typically greater than is normal for conforming mortgage and they vary depending on property type and mortgage amount.
Jumbo mortgage loans are higher risk for lenders. This is because if a jumbo mortgage defaults, it is harder to sell a luxury residence quickly for full price. Additionally luxury prices are more vulnerable to market highs and lows which is the reason that lenders prefer to have a higher down payment from jumbo loan borrowers. Jumbo homes can be more subjective and not as easily sold to a mainstream borrower, therefore many lenders may require two appraisals on a jumbo mortgage loan.
The interest rate charged on jumbo mortgage loans is generally higher than a loan that is conforming due to the slightly higher risk to the lender. The spread or the difference between the two rates depends on the current market price risk. While typically the spread fluctuates between 0.25 and 0.5% at time light now with high investor anxiety, the rates can exceed one and a half percentage point.
Jumbo mortgage loan options are similar to traditional loan programs. The simply require a slightly higher down payment which is usually 5%. Because the loans are large, jumbo lenders frequently offer variable loan programs to the jumbo borrower. The risk is greater to the jumbo loan borrower when the variable rate loan reaches maturity. The maturity dates can be 1 year, 3 years, 5 years, 7 years, and 10 years depending on the ones offered by the lender.
80/10/10 & 80/05/15 jumbo loan programs are very popular with new home purchasers. Because any borrower with less than a twenty percent down payment is subject to purchasing private mortgage insurance (PMI) to in the lender for the higher risk, jumbo mortgage borrowers were previously paying a very large PMI fee on a loan with a LTV (loan-to-value ratio) higher than 80%. Now the jumbo mortgage borrower can borrow the 80% without PMI and take out a slightly higher interest rate which does not require PMI and hedges the risk of the first position lender at a lower interest rate.
Consumers who may require a jumbo mortgage should seek advice from a competent professional who is very familiar with jumbo mortgage loans and who understands what the word consultative mean. There are so many options with jumbo mortgage loans thus the rationale to secure a very competent professional who is a knowledgeable jumbo mortgage lender.

$7500 First-Time Home Buyers Income Tax Credit

2008-12-21T12:37:00.000-08:00

Frequently Asked Questions

About the First-Time Home Buyer Tax Credit

1. Who is eligible to claim the $7,500 tax credit?

First time home buyers purchasing any kind of house – new or resale – are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after April 9, 2008 and before July 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing.

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 tax payers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have owned a house in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

3. 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. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.

4. What types of homes will qualify for the tax credit?

Any home purchase by an eligible first-time home buyer will qualify for the credit, provided that the home will be used for a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses and condominiums, manufacture homes (also known as mobile homes) and houseboats.

5. Instead of buying a new home from a homebuilder, I have hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?

Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after April 9, 2008 and before July 1, 2009.

In contrast, the newly-constructed home bought from a home builder, eligibility for the tax credit is determined by the settlement date.

6. What is the “modified adjusted gross income?

Modified adjusted gross income or MAGI is defined by the IRS. To find it, a tax payer must first determine “adjusted gross income” or AGI. AFI is the total income for a year minus certain deductions (known as “adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education credit.

7. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?

Possibly. It depends on your income. Partial credits of less than $7,500 are available for some taxpayers whose MAGI exceed the phase-out limits. The credit becomes totally unavailable for individual taxpayers with a modified adjusted gross income of more than $95,000 and for married taxpayers filing joint returns with an AGI of more than $170,000.

8. Can you give me an example of how the partial tax credit is determined?

Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase-out to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0 the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $7,500 by 0.5. The result is $3,750.

Here is another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.625 from 1.0, the result is 0.35. Multiplying $7,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,625.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstance.

9. Does the tax credit amount differ based on tax filing status?

No. The credit is in general equal to $7,500 for qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as “married filing separately” (in effect, filing two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.

10. Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500?

In general, that tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited to $7,500. For most first-time home buyers purchase a home priced less than $75,000, the credit will equal 10% of the purchase price.

11. I heard that the tax credit is refundable. What does that mean?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all the amount of the refundable tax credit.

For example, if the qualify home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had a tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualifies for the $7,500 home buyer tax credit. As a result, the tax payer would receive a check for $6,500 ($7,500 minus the $1,000 owed).

12. What is the difference between a tax credit and a tax deduction?

A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the mount of income that is taxed. Using the same example, assume the taxpayer the taxpayer is in the 15 percent tax bracket and woes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer’s tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.

13. Can I claim the tax credit if I finance the purchase of my home under mortgage revenue bond (MRB) program?

No. The tax credit cannot be combined with the MRB home buyer program.

14. I am not a U.S. citizen. Can I claim the tax credit?

Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

15. Des the credit have to be paid back to the government? If so what are the payback provisions?

Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

16. Why must the money be repaid?

Congress’s intent was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first-time home buyers, this will maximize the stimulus for the housing market and the economy, will help stabilize home prices, and will increase home sales. The repayment requirement reduces the effect on the Federal Treasury and assumes that home buyers will benefit from a stabilized and, eventually, increasing future housing prices.

17. Because the money must be repaid, isn’t the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?

Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%, that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compare to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability in the year it is claimed.

18. If I am18 qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 return instead for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

19. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on which year my credit amount is larger?

Yes. If the applicable income phase-out would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

20. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return?

Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up the amount of credit) will enable the future home buyer accumulate cash by raising his/her take home pay. This money can then be applied to the down payment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the credit purchase does not occur, then individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Understanding Your Credit Scores

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There are three major credit reporting agencies,

Experian - FICO score (888-397-3742)
Equifax - Beacon score (800-685-1111)
TransUnion - Emperica score (800-916-8800)

in the United States that maintain records of your use credit and other information about you. These records are called credit reports, and lenders will want to check your credit report when you apply for credit. In most cases the lenders will want to know your credit score.

The most widely used credit scores are FICO scores, the scores created by Fair Isaacs Corporation. Lenders can purchase these FICO scores/reports from all three major credit reporting agencies. Lenders utilize these FICO scores to make credit decisions. Fair Isaacs Corporation develops these FICO scores based solely on the information in consumer credit reports maintained at the credit reporting agencies.

Mortgage lenders utilize the lowest middle score (the middle score from the three credit reporting agencies) in determining rates, terms, etc for a mortgage loan. If there is more than one borrower then the lowest middle score of the borrowers is utilized. With mortgage climate today, lenders have gone to risk based pricing based up the FICO scores.

What are the components of a Credit Score?

35% - Your Payment History. Making scheduled payments on time helps you maintain a higher Credit Score. Delinquencies/Late payments lower your Credit Score.
30% - Amounts you Owe. If your monthly credit liabilities are two high you and you exceed the allowable DTI (debt to income ratio) you will not be able to secure a mortgage loan.
15% - Length of your credit history. If you have good credit history for a longer time this will strengthen your credit score.
10% - Type of credit used.
10% - New credit.

It is a good practice to have a lender like those found at Home Loans Texas Online review your requirements for a home and reviews your credit prior to deciding on the home you wish to purchase. If the lender is consultative like those at Home Loans Texas Online, they will review your credit report to see if there are any duplicate liabilities reported and review with you all the outstanding credit and payment history. The rationale for doing this is to fine those discrepancies with duplicate credit and incorrect reported payment history, have them corrected, and re-score your FICO scores which should improve your credit scores.

James Gill has 25 years experience in Financial Services, having worked for three large retail mortgage lenders. He has provided information and resources along with the most important personal consulting you will ever find to secure your Home Loan (primary home or second home) or Mortgage Loan (for investment property).
You may email James at JWGill@HomeLoansTXOnline.com or call Toll Free: (866) 888-9755 | Office: (512) 231-3661 | Mobile: (512) 565-1814