FHA Mortgage Blog

I’ve received a lot of questions about the recent stimulus package and the $8,000 “First-Time Home Buyer”  tax credit that is part of it.  There are many scenarios and questions about who does and who does not qualify… and even the term “First-time home buyer” is not entirely correct!

Here are some of the top questions complied and answered by the National Association of Mortgage Brokers, the National Association of Realtors and tax advisors!  I have also provided a visual breakdown showing the differences between the initial $7,500 Tax Credit and the new $8,000 Tax Credit.

Nota Bene: This post is for the informational benefit of my Winter Haven, Florida readers.  As always, I advise you all to consult your legal and financial representatives to ensure that your individual situations truly merit taking this tax credit.

Who is Considered a First-Time Home Buyer?

Contrary to what many believe, you can be considered a first-time home buyer even if you’ve owned a home before.  Per current regulations, you may qualify as a first-timer as long as you have not owned a home within the past three (3)  years.  If you sold a home 3 years ago, the date on the HUD 1 will be the determining factor.

For a married couple, if one person owned a home within the last three (3) years and the other did not, they don’t qualify for the tax credit.

However, if an unmarried couple jointly buys a home, and one person owned a home (within 3 years) and the other did not, they can “designate” the tax credit to that person who will be able to claim it on their individual tax return.

This rule also applies for parents to co-sign on a mortgage. The parents own a home. The son or daughter is may then be considered the first-time home buyer and can possibly then claim the tax credit.

Okay, one more scenario. If the first-time home buyer owns a vacation home or rental property, which was not used as a primary residence within the last three (3) years, they may qualify but will have to be able to prove that the “vacation property” is not the primary residence.

A non-US citizen, who meets resident-alien status (defined by the IRS Publication 519) is also eligible as long as they meet the requirements above and income limits.

What Types of Homes are Eligible for the $8,000 Tax Credit?

Pretty much any type of home qualifies for this tax credit, as long as it is a primary residence (as defined by the IRS). Single family, town homes and condos, manufactures or mobile homes and yes, even houseboats all qualify!

Newly constructed homes purchased from a home builder are determined by the date on the HUD 1.

However, if you are building a home to be used as a primary residence, and you owned the land prior to January 1, 2009, the tax code says that the “purchase date” is the date that the owner “first occupies” the home which must be between January 1 and December 1, 2009.

Is It a Tax Credit or a Loan?

If someone purchased a home between April 9 and December 31, 2008, they called it a “tax credit” because you get the tax credit money upfront-but it really was an “interest-free” loan which is paid back for the next fifteen (15) years or upon the sale of the home (within 3 years of purchase). The “payback” is based upon the balance owed and not the entire tax credit received.

The next set of rules applies if a home is purchased between January 1 and December 1, 2009. This credit represents a “true credit” as it does not have to be repaid.  However, if the home is sold within three (3) years of the purchase date, the entire tax credit has to be paid back.

How Does the Government Calculate the Amount I’ll Receive?

You are eligible to receive either 10% of the home’s purchase price or a maximum of $8,000.  The tax credit may be claimed regardless of how you paid for the home.  Whether you obtain a mortgage, a tax-revenue mortgage, or pay cash – it’s all the same!  You still get the dough!

What are the Income Limits for Obtaining this Tax Credit?

This is a little more complicated that the last question, and first-time home buyers should seek advice from a tax expert.

Here is the “simple” explanation based on several scenarios, but keep in mind that the magic income number is always based on your MODIFIED ADJUSTED GROSS INCOME (MAGI), which may be found on the following 3 tax forms:

• IRS 1040 Form – line #37
• IRS Form 1040A – line 21
• IRS 1040EZ – line 4

To claim this tax credit, your MAGI needs to be:

• Single taxpayer: MAGI of $75,000 or less
• Married taxpayer: MAGI of $150,000 or less

Am I Able to Receive a Partial Tax Credit if My MAGI is Too High?

Yes.  There is a provision for single or married folks with higher than allowed income limits to claim a partial tax credit. A “tax credit formula” has been created to determine the specific dollar amount.  Talk with your tax professional for specifics here, but as an example:

A single taxpayer may claim a partial tax credit if she or he comes in at between $75,000 an $95,000 – allowing a differential of $20,000.

Let’s consider the case of a single tax payer with a MAGI 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 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Important: Taxpayers can choose to claim their tax credit on either their 2008 tax returns or wait until the 2009 tax year to file. For example, if they exceed the income limit in 2008 (which would only qualify them for a partial credit) but their income has been decreased in 2009 due to a temporary layoff or cut back in over time, they can wait until 2009 to claim the tax credit (for the full tax credit).

Cash in on Your Tax Credit before Tax Time!

If you don’t want to wait until the end of the year to claim your tax credit, you could file a W-4 form with your  employer, decreasing the amount withheld for your federal taxes. True, you may not get a refund check at the end of the year, but your regular paychecks will be fatter – and you can reap the Tax Credit later.

Using Your Tax Credit for a Down Payment Now!

One option for you to use this Tax Credit to fund your down payment now is to borrower the dollar amount of the expected tax credit from a relative (usually a parent) and pay it back when the tax credit is received.  The money you borrow from your parent or other relative could then be used towards down payment and closing costs.  What’s more – both FHA and VA will allow it! Be sure to check with the lender to be sure of the documentation required.

All in all, the new $8,000 tax credit is a good deal.  As always, be sure to check with your tax and legal professionals before claiming it.  When you’re ready for pre-approval, give me a call at 863-604-3019 and we’ll get you straightened away!

Apply for a Florida FHA Home Loan Today

Kevin Sandridge The Florida Mortgage Pro Signature Home Funding 410 Laurel Cove Way Winter Haven, FL 33884	Mobile: 863-604-3019 Fax: 888-496-0265 Email: kevin.s@sigfunding.com http://www.floridahomeloanspecialist.com
Building effective relationships one step at a time…

Catch More Florida Mortgage News and Insights here:

The Florida Mortgage Blogger | Central Florida Homes and Mortgage Report