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First Time Home Buyer Tax Credit Extension Passes the Senate

by Steve Lines on November 4, 2009
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The U.S. Senate late Wednesday unanimously (98-0) passed H.R. 3548: Unemployment Compensation Extension Act of 2009. This bill will extend unemployment benefits and also significantly expanding a homebuyer tax credit.  The bill is now being sent to the House and it is anticipated that it will receive a vote as early as tomorrow.  Assuming it passes, it will then be forwarded to President Obama for his signature.

The extension to the homebuyer tax credit was added to H.R. 3548 through Senate Amendment. 2722.

Below I have included the actual text of the amendment to H.R. 3548 as it pertains to the extension, modification and expansion of the first time home buyer tax credit.

SEC. 11. EXTENSION AND MODIFICATION OF FIRST-TIME HOMEBUYER TAX CREDIT.
(a) Extension of Application Period.–
(1) IN GENERAL.–Subsection (h) of section 36 of the Internal Revenue Code of 1986 is amended–
(A) by striking “December 1, 2009” and inserting “May 1, 2010”,
(B) by striking “Section.–This section” and inserting “Section.–
“(1) IN GENERAL.–This section”, and
(C) by adding at the end the following new paragraph:
“(2) EXCEPTION IN CASE OF BINDING CONTRACT.–In the case of any taxpayer who enters into a written binding contract before May 1, 2010, to close on the purchase of a principal residence before July 1, 2010, paragraph (1) shall be applied by substituting `July 1, 2010′ for `May 1, 2010′.”.
(2) WAIVER OF RECAPTURE.–
(A) IN GENERAL.–Subparagraph (D) of section 36(f)(4) of such Code is amended by striking “, and before December 1, 2009”.
(B) CONFORMING AMENDMENT.–The heading of such subparagraph (D) is amended by inserting “AND 2010” after “2009”.
(3) ELECTION TO TREAT PURCHASE IN PRIOR YEAR.–Subsection (g) of section 36 of such Code is amended to read as follows:
“(g) Election to Treat Purchase in Prior Year.–In the case of a purchase of a principal residence after December 31, 2008, a taxpayer may elect to treat such purchase as made on December 31 of the calendar year preceding such purchase for purposes of this section (other than subsections (c), (f)(4)(D), and (h)).”.
(b) Special Rule for Long-Time Residents of Same Principal Residence.–Subsection (c) of section 36 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
“(6) EXCEPTION FOR LONG-TIME RESIDENTS OF SAME PRINCIPAL RESIDENCE.–In the case of an individual (and, if married, such individual’s spouse) who has owned and used the same residence as such individual’s principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence, such individual shall be treated as a first-time homebuyer for purposes of this section with respect to the purchase of such subsequent
residence.”.
(c) Modification of Dollar and Income Limitations.–
(1) DOLLAR LIMITATION.–Subsection (b)(1) of section 36 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:
“(D) SPECIAL RULE FOR LONG-TIME RESIDENTS OF SAME PRINCIPAL RESIDENCE.–In the case of a taxpayer to whom a credit under subsection (a) is allowed by reason of subsection (c)(6), subparagraphs (A), (B), and (C) shall be applied by substituting `$6,500′ for `$8,000′ and `$3,250′ for `$4,000′.”.
(2) INCOME LIMITATION.–Subsection (b)(2)(A)(i)(II) of section 36 of such Code is amended by striking “$75,000 ($150,000” and inserting “$125,000 ($225,000”.
(d) Limitation on Purchase Price of Residence.–Subsection (b) of section 36 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
“(3) LIMITATION BASED ON PURCHASE PRICE.–No credit shall be allowed under subsection (a) for the purchase of any residence if the purchase price of such residence exceeds $800,000.”.
(e) Waiver of Recapture of First-Time Homebuyer Credit for Individuals on Qualified Official Extended Duty.–Paragraph (4) of section 36(f) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:
“(E) SPECIAL RULE FOR MEMBERS OF THE ARMED FORCES, ETC.–
“(i) IN GENERAL.–In the case of the disposition of a principal residence by an individual (or a cessation referred to in paragraph (2)) after December 31, 2008, in connection with Government orders received by such individual, or such individual’s spouse, for qualified official extended duty service–
“(I) paragraph (2) and subsection (d)(2) shall not apply to such disposition (or cessation), and
“(II) if such residence was acquired before January 1, 2009, paragraph (1) shall not apply to the taxable year in which such disposition (or cessation) occurs or any subsequent taxable year.
“(ii) QUALIFIED OFFICIAL EXTENDED DUTY SERVICE.–For purposes of this section, the term `qualified official extended duty service’ means service on qualified official extended duty as–
“(I) a member of the uniformed services,
“(II) a member of the Foreign Service of the United States, or
“(III) an employee of the intelligence community.
“(iii) DEFINITIONS.–Any term used in this subparagraph which is also used in paragraph (9) of section 121(d) shall have the same meaning as when used in such paragraph.”.
(f) Extension of First-Time Homebuyer Credit for Individuals on Qualified Official Extended Duty Outside the United States.–
(1) IN GENERAL.–Subsection (h) of section 36 of the Internal Revenue Code of 1986, as amended by subsection (a), is amended by adding at the end the following:
“(3) SPECIAL RULE FOR INDIVIDUALS ON QUALIFIED OFFICIAL EXTENDED DUTY OUTSIDE THE UNITED STATES.–In the case of any individual who serves on qualified official extended duty service (as defined in section 121(d)(9)(C)(i)) outside the United States for at least 90 days during the period beginning after December 31, 2008, and ending before May 1, 2010, and, if married, such individual’s spouse–
“(A) paragraphs (1) and (2) shall each be applied by substituting `May 1, 2011′ for `May 1, 2010′, and
“(B) paragraph (2) shall be applied by substituting `July 1, 2011′ for `July 1, 2010′.”.
(g) Dependents Ineligible for Credit.–Subsection (d) of section 36 of the Internal Revenue Code of 1986 is amended by striking “or” at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting “, or”, and by adding at the end the following new paragraph:
“(3) a deduction under section 151 with respect to such taxpayer is allowable to another taxpayer for such taxable year.”.
(h) IRS Mathematical Error Authority.–Paragraph (2) of section 6213(g) of the Internal Revenue Code of 1986 is amended–
(1) by striking “and” at the end of subparagraph (M),
(2) by striking the period at the end of subparagraph (N) and inserting “, and”, and
(3) by inserting after subparagraph (N) the following new subparagraph:
“(O) an omission of any increase required under section 36(f) with respect to the recapture of a credit allowed under section 36.”.
(i) Coordination With First-Time Homebuyer Credit for District of Columbia.–Paragraph (4) of section 1400C(e) of the Internal Revenue Code of 1986 is amended by striking “and before December 1, 2009,”.
(j) Effective Dates.–
(1) IN GENERAL.–The amendments made by subsections (b), (c), (d), and (g) shall apply to residences purchased after the date of the enactment of this Act.
(2) EXTENSIONS.–The amendments made by subsections (a), (f), and (i) shall apply to residences purchased after November 30, 2009.
(3) WAIVER OF RECAPTURE.–The amendment made by subsection (e) shall apply to dispositions and cessations after December 31, 2008.
(4) MATHEMATICAL ERROR AUTHORITY.–The amendments made by subsection (h) shall apply to returns for taxable years ending on or after April 9, 2008.
SEC. 12. PROVISIONS TO ENHANCE THE ADMINISTRATION OF THE FIRST-TIME HOMEBUYER TAX CREDIT.
(a) Age Limitation.–
(1) IN GENERAL.–Subsection (b) of section 36 of the Internal Revenue Code of 1986, as amended by this Act, is amended by adding at the end the following new paragraph:
“(4) AGE LIMITATION.–No credit shall be allowed under subsection (a) with respect to the purchase of any residence unless the taxpayer has attained age 18 as of the date of such purchase. In the case of any taxpayer who is married (within the meaning of section 7703), the taxpayer shall be treated as meeting the age requirement of the preceding sentence if the taxpayer or the taxpayer’s spouse meets such age requirement.”.
(2) CONFORMING AMENDMENT.–Subsection (g) of section 36 of such Code, as amended by this Act, is amended by inserting “(b)(4),” before “(c)”.
(b) Documentation Requirement.–Subsection (d) of section 36 of the Internal Revenue Code of 1986, as amended by this Act, is amended by striking “or” at the end of paragraph (2), by striking the period at the end of paragraph (3) and inserting “, or”, and by adding at the end the following new paragraph:
“(4) the taxpayer fails to attach to the return of tax for such taxable year a properly executed copy of the settlement statement used to complete such purchase.”.
(c) Restriction on Married Individual Acquiring Residence From Family of Spouse.–Clause (i) of section 36(c)(3)(A) of the Internal Revenue Code of 1986 is amended by inserting “(or, if married, such individual’s spouse)” after “person acquiring such property”.
(d) Certain Errors With Respect to the First-Time Homebuyer Tax Credit Treated as Mathematical or Clerical Errors.–Paragraph (2) of section 6213(g) the Internal Revenue Code of 1986, as amended by this Act, is amended by striking “and” at the end of subparagraph (N), by striking the period at the end of subparagraph (O) and inserting “, and”, and by inserting after subparagraph (O) the following new subparagraph:
“(P) an entry on a return claiming the credit under section 36 if–
“(i) the Secretary obtains information from the person issuing the TIN of the taxpayer that indicates that the taxpayer does not meet the age requirement of section 36(b)(4),
“(ii) information provided to the Secretary by the taxpayer on an income tax return for at least one of the 2 preceding taxable years is inconsistent with eligibility for such credit, or
“(iii) the taxpayer fails to attach to the return the form described in section 36(d)(4).”.
(e) Effective Date.–
(1) IN GENERAL.–Except as otherwise provided in this subsection, the amendments made by this section shall apply to purchases after the date of the enactment of this Act.
(2) DOCUMENTATION REQUIREMENT.–The amendments made by subsection (b) shall apply to returns for taxable years ending after the date of the enactment of this Act.
(3) TREATMENT AS MATHEMATICAL AND CLERICAL ERRORS.–The amendments made by subsection (d) shall apply to returns for taxable years ending on or after April 9, 2008.

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Status Update: Will Congress Extend the 8000 First Time Homebuyer Tax Credit?

by Steve Lines on October 28, 2009
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Senate negotiators have reached a tentative deal to extend the existing first time home buyer tax credit. The current tax credit is set to expire at the end of November.

To be clear, the current 8000 first time home buyer tax credit has not yet been extended. But this current agreement is the first sign of life that has indicated that Congress potentially intends to do so.

homebuyerassistance 300x197 Status Update: Will Congress Extend the 8000 First Time Homebuyer Tax Credit?

8000 Tax Credit Extended

The agreement would extend the existing 8000 tax credit for first time home buyers and expand the credit to include current homeowners who want to move in order to give the weakened real estate market a bigger boost.

Senators have not agreed on how the tentative deal would come up for a vote, but both Democratic and Republican sources have said they are considering adding the housing credit to a bill that would extend unemployment benefits.

House Speaker Nancy Pelosi has indicated she also is interested in extending the homeowner credit, but House leaders have yet to endorse any one bill.

As I reported previously, there are currently five bills that have been introduced in Congress that would extend the existing tax credit. However, none of these have moved farther than the “referred to committee” status.

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Discussing FHA Mortgage Loans at the Arizona School of Real Estate

by Steve Lines on September 24, 2009
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Social Media for Mortgage Marketing

rsz 1arizonafhaloan 300x199 Discussing FHA Mortgage Loans at the Arizona School of Real Estate

Arizona FHA Loans

I’m teaching a class right now at the Arizona School of Real Estate and Business with a group of new loan officers and we are discussing the power of social media for marketing FHA mortgages to real estate agents in Arizona.

Right now, I am writing to demonstrate how to structure a post and promote it on Twitter and Facebook.

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The “No-Cost” FHA Streamline Refinance May Be a Thing of the Past

by Steve Lines on September 18, 2009
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HUD’s issuance of Mortgagee Letter 2009-32, Revised Streamline Refinance Transactions today may have effectively put an end to a popular program for FHA borrowers – the “No-Cost” FHA Streamline Refinance.

For years, millions of home owners with FHA loans have taken advantage of the opportunity to refinance their mortgage to a lower interest rate without having to pay out-of-pocket closing costs and without having to have their homes appraised.  In truth, there is no such thing as a “no cost” refinance; rather, the transaction is one of the following scenarios:

  • The closing costs related to the streamline refinance are financed into the loan balance (no “out-of-pocket” costs).
  • The closing costs are not charged by the lender but the borrower receives an interest rate that is higher than the current market rate (the cost is spread throughout the life of the loan in the form of a higher monthly payment).
  • The closing costs are offset — in part or in total — by the refund of the upfront mortgage insurance premium from the loan being paid off (opportunity cost).
  • A mixture of all three of the above.
  • Or, the FHA streamline refinance is not “no cost” and the borrower pays the closing costs at closing.

It should be mentioned that another cost is the fact that in almost all cases, the loan term is reset to 30 years.

In any of the above situations, the home owner has to determine if the benefit of the refinance warrants the cost.  He (she) might ask himself, “Is it worth it to me to increase my loan balance by $3500.00 if I save $120 a month?” or ”How long am I going to live in this house?  If it takes me 29 months to recuperate my costs, will I be here long enough to benefit from the savings?”

Many times the decision has been made much easier because of the fact that the closing costs were not coming out of pocket.  Quite frankly, the decision for many is based, in large part, on current cash flow needs.  For many home owners, the ability to reduce their monthly bills and “skip” a month’s payment (remember, I said “cash flow”) has been worth the financed closing costs.

Unfortunately, this fact has also created a slew of loan officers that are happily willing to streamline home owners over and over again to help them decrease their interest rate by a nominal amount without concern or care.  They hide, avoid and/or neglect the fact that the costs probably outweigh the benefits.  All the while, they are putting the home owner and FHA at risk.

How does it put the home owner at risk?  Each time they increase their loan balance, they leverage their house more and increase their exposure.

How does it put FHA at risk?  FHA insures each loan so when the loan balance goes up, the amount that FHA is insuring goes up.  It may not seem like a big deal that they insure $3500 more … until you multiply that number by 2 million (the approximate number of loan applications FHA received in fiscal year 2008).

This is why FHA made the streamline refinance revisions that they announced today; to reduce their risk, protect less-than-knowledgeable home owners from unscrupulous loan officers, and make those who really will benefit from the streamline program have some skin in the game.

Over the next few years, this will help FHA reduce its exposure by eliminating streamline refinances for houses that are upside down in value if the borrowers aren’t willing and able to pay for their closing costs out of pocket.  However, many homeowners who really need and deserve the benefits of the “no cost” streamline refinance will unfortunately lose their opportunity.

In the long-run, home owners will regain their access to the benefits of the “no cost” streamline refinance when property values start to increase again and rebuild equity.

Review of the Key Revisions:

Revisions Made To Reduce Risk to Home Owners

1) The result of the streamline refinance transaction must have a net tangible benefit is defined as:

  • reduction in the total mortgage payment (principal, interest, taxes and insurances, homeowners’ association fees, ground rents, special assessments and all subordinate liens),
  • refinancing from an adjustable rate mortgage (ARM) to a fixed rate mortgage,

or

  • reducing the term of the mortgage.

The new total mortgage payment must be 5 percent lower than the total mortgage payment for the mortgage being refinanced.

This requirement is applicable when refinancing from a Fixed Rate to Fixed Rate, from an ARM to ARM, from a Graduated Payment Mortgage (GPM) to Fixed Rate, from GPM to ARM, from a 203(k) to 203(b) and from a 235 to 203(b).

Revisions Made To Reduce Risk to FHA

1) At the time of the loan application, the borrower mus have made at least 6 payments on the FHA loan being refinanced.  If they have less than 12 months payment history, they can never have been late.  If they have over 12 months of payment history, they can only have one late in the past 12 months and none in the most recent three months.

2) The lender must certify that the borrower is employed and has income at the time of loan application.

3) If assets are needed to close, the lender must verify and document those assets.

4) If a credit score is available, the lender must enter the credit score.

5) If subordinate financing is remaining in place, the maximum combined loan-to-value ratio is 125 percent.

  • For streamline refinance transactions WITHOUT an appraisal, the CLTV is based on the original appraised value of the property.
  • For streamline refinance transactions WITH an appraisal, the CLTV is based on the new appraised value.

6) If the transaction is a streamline refinance WITHOUT an appraisal, closing costs can not be financed into the loan amount.

7) If the transaction is a streamline refinance WITH an appraisal, the maximum loan amount is the lower of:

  • Outstanding principal balance minus the applicable refund of the upfront mortgage insurance premium, plus closing costs, prepaid items to establish the escrow account and the new upfront mortgage insurance premium that will be charged on the refinance;

or

  • 97.75 percent of the appraised value of the property plus the new upfront mortgage insurance premium that will be charged on the refinance.

8 ) Discount points may not be included in the new mortgage. If the borrower has agreed to pay discount points, the lender must verify the borrower has the assets to pay them along with any other financing costs that are not included in the new mortgage amount.

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FHA Announces Major Changes To Streamline Refinance Requirements

by Steve Lines on September 18, 2009
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FHA issued MORTGAGEE LETTER 2009-32 today announcing revised procedures for streamline refinance transactions.  The changes are effective in 60 days from the date of the mortgagee letter (September 18, 2009).

Aside from the reaffirmation of existing procedures streamline refinance transactions, the following key revisions were announced:

  • Seasoning
  • Payment history
  • Net tangible benefit for the borrower
  • Maximum Combined Loan-to-Value
  • New Maximum Mortgage Amount for Streamline Refinances WITHOUT an Appraisal
  • Discounts Points no longer included in Existing Debt for Streamline Refinances WITH an Appraisal
  • Verification of any assets needed to close
  • Certification that borrower is employed and has income
  • Elimination of abbreviated Uniform Residential Loan Application (URLA)

I. Revisions for ALL Streamline Refinance Transactions

A. Seasoning

At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced.

B. Payment History

At the time of loan application, the borrower must exhibit an acceptable payment history as described below.

1) For mortgages with less than a 12 months payment history, the borrower must have made all mortgage payments within the month due.

2) For mortgages with a 12 months payment history or greater, the borrower must have:

a) Experienced no more than one 30 day late payment in the preceding 12 months,

AND

b) Made all mortgage payments within the month due for the three months prior to the date of loan application.

C. Net Tangible Benefit

The lender must determine that there is a net tangible benefit as a result of the streamline refinance transaction, with or without an appraisal. Net tangible benefit is defined as:

• reduction in the total mortgage payment (principal, interest, taxes and insurances, homeowners’ association fees, ground rents, special assessments and all subordinate liens),

• refinancing from an adjustable rate mortgage (ARM) to a fixed rate mortgage,

OR

• reducing the term of the mortgage.

Reduction in Total Mortgage Payment: The new total mortgage payment is 5 percent lower than the total mortgage payment for the mortgage being refinanced. Example: Total mortgage payment on the existing FHA-insured mortgage is $895; the total mortgage payment for the new FHA-insured mortgage must be $850 or less.

This requirement is applicable when refinancing from a Fixed Rate to Fixed Rate, from an ARM to ARM, from a Graduated Payment Mortgage (GPM) to Fixed Rate, from GPM to ARM, from a 203(k) to 203(b) and from a 235 to 203(b).

Fixed Rate to ARM: Fixed rate mortgages may be refinanced to a one-year ARM provided that the interest rate on the new mortgage is at least 2 percentage points below the interest rate of the current mortgage

ARM to Fixed Rate: The interest rate on the new fixed rate mortgage will be no greater than 2 percentage points above the current rate of the one-year ARM. For hybrid ARMs, the total mortgage payment on the new fixed rate mortgage may not increase by more than 20 percent . Example: total mortgage payment on the hybrid ARM is $895; the total mortgage payment for the new fixed rate mortgage must be $1,074 or less.

Reduction in Term: For transactions that include a reduction in the mortgage term, that loan must be underwritten and closed as a rate and term (no cash-out) refinance transaction.

Investment Properties/Secondary Residences: In addition to meeting the requirement for a reduction in the total mortgage payment, investment properties or secondary residences are not eligible for streamline refinancing to ARMs.

D. Certifications and Verifications

When submitting the loan for insurance endorsement, the lender must include a signed and dated cover letter on their letterhead certifying that the borrower is employed and has income at the time of loan application.

If assets are needed to close, the lender must verify and document those assets.

The lenders must also include the pay-off statement in the case binder.

E. Credit Score

If a credit score is available, the lender must enter the credit score into FHA Connection. If more than one credit score is available, lenders must enter all available credit scores.

F. Maximum Combined Loan to Value

If subordinate financing is remaining in place, the maximum combined loan-to-value ratio is 125 percent.

• For streamline refinance transactions WITHOUT an appraisal, the CLTV is based on the original appraised value of the property.

• For streamline refinance transactions WITH an appraisal, the CLTV is based on the new appraised value.

G. TOTAL Scorecard

Lenders should not use TOTAL on streamline refinance transactions. If a lender uses TOTAL, that loan must be underwritten and closed as a rate and term (no cash-out) refinance transaction.

H. Uniform Residential Loan Application (URLA)

Mortgagees may no longer use an abbreviated version of the URLA. Due to various disclosure requirements and our long-standing belief that borrowers are best served when certifications they must make are divulged as early as possible in the loan application process, the application for mortgage insurance must be signed and dated by the borrower(s) before the loan is underwritten. Mortgagees are permitted to process and underwrite the loan after the borrowers and interviewer complete the initial URLA and initial form HUD-92900A, HUD/VA Addendume to Uniform Residential Loan Application.

II. Revised Streamline Refinance Transactions WITHOUT an Appraisal

The maximum insurable mortgage cannot exceed:

• The outstanding principal balance minus the applicable refund of the UFMIP,

PLUS

• The new UFMIP that will be charged on the refinance.

III. Revised Streamline Transaction WITH an Appraisal

The maximum insurable mortgage is the lower of:

1) Outstanding principal balance2 minus the applicable refund of UFMIP, plus closing costs, prepaid items to establish the escrow account and the new UFMIP that will be charge on the refinance;

OR

2) 97.75 percent of the appraised value of the property plus the new UFMIP that will be charged on the refinance.

Discount points may not be included in the new mortgage. If the borrower has agreed to pay discount points, the lender must verify the borrower has the assets to pay them along with any other financing costs that are not included in the new mortgage amount.

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Need Another Reason to Finance Your House with an FHA Mortgage? They Are Assumable.

by Steve Lines on September 7, 2009
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FHA mortgages continue to be an extremely attractive means for financing homes in the current economic and housing environment due to their low down payment requirements, liberal underwriting guidelines, affordable interest rates and government insurance. In fact, the majority of the mortgages funded in our office have been FHA loans.  In addition to the fantastic benefits named above, a lesser-considered benefit that FHA loans have to offer is the fact that they are assumable.

What is an Assumable Loan?

Investopedia.com defines an assumable loan as follows:

“A type of financing arrangement in which the outstanding mortgage and its terms can be transfered from the current owner to a buyer. By assuming the previous owner’s remaining debt, the buyer can avoid having to obtain his or her own mortgage.”

The result of a home purchased through a loan assumption is that the person assuming the loan will simply begin to make the payments as they come due when the title is transferred.

FHA Mortgages Are Assumable.

All FHA loans are assumable when processed using HUD’s guidelines. However, mortgages closed on or after December 15, 1989 require credit qualification of those borrowers wishing to assume the mortgage. See FHA Handbook 4155.1 REV 5, Sections 4-1 and 4-4 and Handbook 4330.1 REV 5, Section 6-6.

What Is the Benefit of an Assumable Loan?

The main benefit of an assumable FHA loan is that the interest rate is transferable upon assumption of the loan. If you are financing your home today, this may not seem like a big deal to you. But if you plan to sell the house you are currently financing in a few years from now (or later), it could be. Consider the competitive advantage that you will have as a seller if your house is on the market with at 5.5% fixed assumable interest rate at a time when the market rates are at 9 or 10%. Because your house is much more affordable to a prospective buyer, it will have a higher likelihood of selling.

Will Interest Rates Go Up?

The benefit of having an assumable loan is based on the ability to transfer the rate to a new buyer when the market rates are higher. Obviously, for this scenario to transpire, market rates have to go up. Will this happen? Many economists predict that as the economy starts to recover we will experience inflation and rates will go up. This prediction appears reasonable when one considers the existing monetary policies that are in use to help stimulate the economy (e.g. quantitative easing and stimulus packages).

Therefore, if you are considering what type of financing to use to purchase or refinance your home, remember that aside from the current great low interest rates, low down payment requirement and liberal underwriting criteria, the fact that FHA loans are assumable is a significant benefit.

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Will the Obama 8000 First Time Home Buyer Tax Credit Be Extended?

by Steve Lines on September 3, 2009
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loanapplication 300x200 Will the Obama 8000 First Time Home Buyer Tax Credit Be Extended?Many people want to know if the existing Obama $8000 first time home buyer tax credit that expires on December 1st, 2009 will be extended. This is a good question. As of today, there is just under 60 days left to…

  • look for;
  • put in an offer on;
  • negotiate and have the offer accepted on;
  • qualify for a loan for;
  • make sure you have enough money for down payment and closing costs for;
  • get an inspection on;
  • appraise the value of;
  • process, underwrite and produce loan documents for;
  • sign documents at title (attorney’s office) for;
  • make sure the loan funds;
  • and have the note and deed recorded properly for

your house. This process can easily take over 60 days.

As it stands, if this does not happen by November 30th, you will not get the tax credit. If you are still trying to take advantage of the existing $8000 first time home buyer tax credit, the time to act is now.  (Additional Information on the Obama 8000 First Time Home Buyer Tax Credit)

Here is the good news! There are a five bills that have been introduced to Congress to extend the first time home buyer tax credit.

S. 1230: Home Buyer Tax Credit Act of 2009 — introduced on June 10th, 2009. This Act proposes to replace the current tax credit for first-time homebuyers with a one-time credit for 10% of the purchase price of a principal residence, up to $15,000. Requires repayment of credit amounts if the taxpayer sells or fails to occupy the residence within 24 months after the date of purchase.

*** Status Update: As of October 3rd, 2009 S. 1230 was still in “Referred to Committee” status ***

H.R. 2801: Home Ownership Moves the Economy (HOME) Act of 2009 — introduced on June 10th, 2009. This Act proposes the following:

  • extend the first-time homebuyer tax credit to all individuals who purchase a principal residence (currently, only first-time homebuyers as so defined);
  • extend the credit and the waiver of recapture requirements for such credit through 2010 (expiration would be moved to January 1st, 2011);
  • and repeal the limitation on the credit based on modified adjusted gross income.

*** Status Update: As of October 3rd, 2009 H.R. 2801 was still in “Referred to Committee” status ***

H.R. 2606: Home Buying Credit Expansion Act – introduced on May 21st, 2009. This Act proposes the following:

  • extend the first-time homebuyer tax credit to all individuals who purchase a principal residence (currently, only first-time homebuyers as so defined);
  • extend the credit and the waiver of recapture requirements for such credit through 2010 (expiration would be moved to January 1st, 2011).
  • and expand the election to treat a purchase of a principal residence as made in a prior taxable year for purposes of such credit.

*** Status Update: As of October 3rd, 2009 H.R. 2606 as still in “Referred to Committee” status ***

H.R. 2619: To amend the Internal Revenue Code of 1986 to temporarily expand the credit for first-time… – introduced on May 21st, 2009. This Act proposes the following:

  • to allow until June 30, 2010 a first-time homebuyer tax credit for all purchasers of a principal residence (not just first-time homebuyers);
  • and provide a refundable tax credit, up to $3,000, for the costs of refinancing a principal residence.

*** Status Update: As of October 3rd, 2009 H.R. 2619 as still in “Referred to Committee” status ***

H.R. 2655: To amend the Internal Revenue Code of 1986 to expand and extend the first-time homebuyer credit – introduced on June 2nd, 2009. This Act proposes the following:

  • extend the first-time homebuyer tax credit to all individuals who purchase a principal residence (currently, only first-time homebuyers as so defined);
  • extend such credit and the waiver of recapture requirements for such credit through 2010;
  • and expand the election to treat a purchase of a principal residence as made in a prior taxable year for purposes of such credit.

*** Status Update: As of October 3rd, 2009 H.R. 2655 as still in “Referred to Committee” status ***

On September 8th, Congress reconvened.  We will see if any of these (or a hybrid version of some/all of them) will pass.

Here is the bad news! There is less than 60 days for Congress to extend the first time home buyer tax credit and there are major issues (i.e. healthcare) that may take priority and push the tax credit to the side.

For now, we can either wait and see if the intense lobbying by groups such as the National Association of REALTORS® and National Association of Home Builders can sway our lawmakers to believe that this is a priority item or we can contact our local senator or representatives’ offices and tell them ourselves.

Senate Look-up
Representative Look-up

If you are a first time home buyer and you want to ensure that you can take advantage of the current $8000 first time home buyer tax credit, you must act now. As a reminder, the available FHA financing options are tailor-made for first time homebuyers. If you are thinking of buying a home and have more questions, please contact me at any time.

Steve Lines
FHA Mortgage Specialist
Cell: 480-329-3346
email: slines@bestFHAlender.com
www.bestFHAlender.com
http://twitter.com/stevelines

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Everything You Want To Know About The 2009 Obama 8000 Tax Credit for First Time Home Buyers Being Used For FHA Down Payment and Closing Costs

by Steve Lines on June 5, 2009
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Can you use the Obama 8000 tax credit for your FHA down payment?

Yes, No, Maybe So.

tax credit Everything You Want To Know About The 2009 Obama 8000 Tax Credit for First Time Home Buyers Being Used For FHA Down Payment and Closing Costs Last month on May 12th, Secretary of Housing and Urban Development Shaun Donovan created a fervor in real estate and mortgage industry when he announced in a speech to National Association of Realtors that FHA was working on an initiative to allow first time home buyers to use the 8000 tax credit created by the American Recovery and Reinvestment Act of 2009 (Obama 8000 tax credit) for their down payment on a new home.  This was followed by a mortgagee letter related to the subject being posted on HUD’s website.  Immediately real estate and mortgage professionals began to communicate this information to each other and to their clients.  Unfortunately, within a couple of days, FHA retracted the announcement as there were a number of issues with the logistics and legality of the 8000 tax credit down payment plan.

In the weeks that followed, many articles were posted on the web with a variety of information regarding whether or not you could use the Obama 8000 tax credit as a first time home buyer down payment.

There was abounding speculation since FHA was quiet regarding clarification of whether or not a first time home buyer could use the Obama 8000 tax credit as a down payment.  Finally, on May 29th, FHA re-issued Mortgagee Letter 2009-15 with details on how the Obama 8000 tax credit could be used by first time home buyers in conjunction with an FHA loan.

The following are highlights of the FHA program for the use of the Obama 8000 tax credit for first time home buyers:

Can the Obama 8000 tax credit be used for a first time home buyer’s down payment?

Yes, but only after the first time home buyer has provided the initial 3.5% FHA down payment.  After that, additional down payment funds can come from the Obama 8000 tax credit.  To be clear, a first time homebuyer can NOT use the Obama 8000 tax credit to meet the minimum FHA 3.5% down payment requirement.

Can the Obama 8000 tax credit be used to pay for the buyer’s closing costs?

Yes, a first time home buyer can use the Obama 8000 tax credit for closing costs that are normally associated with buying a home (e.g. lender fees, points, title fees, inspection fees, etc.).

How does the first time home buyer obtain upfront funds from the Obama 8000 tax credit to use to help buy a house?

FHA will permit FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, state, and local governmental agencies and instrumentalities to purchase the Obama 8000 tax credit anticipated by the first time home buyer.  In other words, one of the aforementioned sources can loan the first time home buyer the money they expect to get resulting from the Obama 8000 tax credit for a regulated fee.  In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive.  The source of the loan can securitize the loan as a second lien on the house and may choose to require monthly payments or not.  The IRS will not allow the second lien to have a balloon payment under 10 years.

How does the first time home buyer request the Obama 8000 tax credit from the IRS?

After the first time home buyer has bought the house …

  • the first time home buyer can wait until next year and file IRS form 5405 “First-Time Homebuyer” along with his or her 2009 tax return.
  • the first time home buyer can file IRS form 5405 with his or her amended 2008 tax return.
  • if the first time home buyer filed for an extension to the filing of their 2008 tax returs, they can submit IRS form 5405 along with his or her 2008 tax return.

Other resources regarding the Obama 8000 tax credit for first time home buyers.

Explanation of the original 7500 tax credit created by the Housing and Economic Recovery Act of 2008.

Summary of the new 2009 Obama 8000 tax credit created by the American Recovery and Reinvestment Act of 2009.

Answers to Frequently Asked Questions about the Obama 8000 tax credit for first time home buyers provided by the National Association of Home Builders.

Please contact me with any additional questions.

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Top 10 Reasons College Graduates Should Use FHA Loans to Buy a House

by Steve Lines on May 21, 2009
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Why College Graduates Should Use FHA Loans to Buy a House.

May is graduation month across America and Best FHA Lender would like to offer congratulations to all of the recent college graduates.  What an exciting time in your life.  You may have been offered a nice starting position and the door to your future is wide open.  You have the opportunity to make smart financial decisions that will lay the foundation of your financial future and benefit you for the rest of your lives.  As enthusiastic as that sounds, it may not translate easily if you’re living in mom and dad’s basement.  But, even if you’re not “that guy” or “that girl”, you should consider the fact that right now is an incredible time to buy your first home, and a FHA loan is a fantastic tool for recent college graduates who are first time home buyers.

Why choose an FHA loan?  How does a college graduate looking to buy a house benefit from an FHA loan?

Here are the Top 10 Reasons that college graduates should use a FHA loan to buy their first home.

10.  Housing prices are extremely low.

Admittedly, this is not a function of FHA; however, it does create a sense of urgency for a recent college graduate to take advantage of the fact that they graduated while home prices in the real estate market are so low.  FHA loans have the features that provide the opportunity to buy your first home right out of college.

9. FHA interest rates are extremely low.

You may think that this is not a function of FHA either and that it is dictated by the market, but that is not entirely true.  You probably have learned in college that a higher risk correlates to a higher return.  If that is the case, why do FHA rates have such low interest rates when they are so often used by first time home buyers and people with bad credit or no credit?  The answer is that the federal government insures the loan, thus providing a lower level of risk to the investor.

8. Take advantage of the $8000.00 first time home buyer tax credit.

On February 17th, 2009, President Obama signed the American Recovery and Reinvestment Act that included, as one of its key provisions, a modification of the first time homebuyer tax credit.  Currently, first time home buyers can obtain up to $8000.00 in the form of a tax credit.  The good news is that repayment of the tax credit is no longer required.  The availability of this tax credit currently expires on December 1st, 2009.  Click here to see more details about the $8000 first time home buyer tax credit.

7. Buying a house will increase recent college graduates’ opportunities to itemize your deductions on their tax returns.

When you file your tax returns, you have the option to choose between taking either a standard deduction or itemizing your deductions.  As you might expect, there is a threshold that you must cross in order to be able to itemize your deductions.  Many recent college graduates do not have enough deductions to meet the level needed to be able to itemize.  In 2008, the standard deduction for an individual filing under the “single” status was $5450.  If you own your home, the interest paid on your primary residence is tax deductible and the interest that you pay over a year’s time may be greater than the standard deduction depending on your loan size and interest rate.  Once you have met the threshold for itemization, you may potentially be able to itemize the following expenses (please check with your CPA or tax advisor):

  • Interest expense on your primary residence (as mentioned)
  • Private mortgage insurance paid on your primary residence
  • Unreimbursed Medical or Dental Expenses
  • Taxes paid.  This includes taxes on personal property and state income tax.  Keep in mind that a sizeable portion of your annual car registration is a personal property tax.
  • Charitable donations – both as cash or assets – made to qualifying charitable organizations.
  • Casualty and theft losses.
  • Unreimbursed job-related expenses.
  • Other miscellaneous deductions

6.  FHA loans allow recent college graduates to count their time in school as part of their employment history.

To qualify for a mortgage, you have to prove income stability.  Typically, a lender will require that you prove at least two years of previous employment history in the same field.  How do you do that if you just graduated and you’re starting your first job in your career path?  FHA allows a recent college graduate’s previous school experience to be used in order to satisfy the two year employment history requirement.

5. FHA loans allow recent college graduates to qualify with limited credit history.

FHA loans allow you, a potential first time home buyer, to be approved for a mortgage even if you have no FICO scores or if you have a credit score with limited credit history reporting.  This is through the use of “non-traditional” credit references.  FHA allows you to provide a clean 12-month payment history for three credit references that do not report to the credit bureaus such as rental payments, utilities, cable TV, telephone bills, etc.  FHA underwriters will review these alternative credit references in order to evaluate your bill paying habits and make a determination of whether or not you will be approved.

4.  FHA loans allow recent college graduates to be approved using a non-occupying co-signer.

Many college graduates start their careers in entry-level positions with entry-level pay.  However, they know that their earning potential is good and that their income is likely to increase.  If you are a recent college graduate, you can buy the house that you want now, by taking advantage of the fact that FHA loans allow for the use of a non-occupying co-signer.  The co-signer must be a blood relative, or an unrelated individual that can document evidence of a family-type, long-standing relationship not arising out of the loan transaction.  If this is the case, the co-signer’s income, assets, liabilities and credit history are included on your loan application in order to determine your credit worthiness.

3. FHA loans allow the seller to pay recent college graduates’ closing costs.

One of the largest barriers to home ownership is paying the closing costs that are related to a home purchase.  These fees include origination fees, discount points, appraisal fees, processing and underwriting fees, title fees, prepaid taxes, prepaid insurance, etc, and they can add up to be thousand of dollars.  Fortunately, for recent college graduates who are buying a house, FHA loans allow the seller to pay up to 6% of the closing costs related to the transaction.  Typically, this should be enough to easily cover all closing costs.

2.  FHA loans have two great features that allow a recent college graduate to “Ease In” to their mortgage payment.

What does that mean?  FHA loans allow for you, a new home buyer, to take advantage of features that will initially reduce your payments through temporary interest subsidies.  These options are the FHA 2-1 Buy Down option and the FHA Interest Abatement option.

FHA 2-1 Buy Down

The FHA 2-1 buy down allows you to reduce the initial interest rate on your mortgage by 2% the first year of your loan and 1% the next year.  This is not an adjustable rate mortgage (ARM).  The FHA 2-1 buy down option works in conjunction with the FHA fixed rate program.  So, if you purchase a home with an FHA loan with a fixed rate of 5.5% (for example), the first year’s payment will be based on an interest rate of 3.5%, the second year’s payment will be based on an interest rate of 4.5% and the payment will be based on the 5.5% rate thereafter.  This is a great benefit to recent college graduates who are starting with entry-level salary but anticipate pay increases with experience.

FHA Interest Abatement Option

The FHA interest abatement option allows your interest payments to be paid on your behalf for up to six months.  As a result, your initial payments are very low.  For example, if you were to buy a home for $150,000.00 financed with a FHA loan at 5.5% (example), the principal and interest payment could be around $840 a month.  Of that amount, the interest portion of around $678 could be paid on your behalf.  The remaining payments (which will include the principal, taxes, insurance and mortgage insurance) are very low and affordable for up to the first six months.  This allows you to “ease in” to your payment.  This is a great benefit to recent college graduates who can use the amount saved to pay down other debts or buy furniture, fixtures and equipment for their new home (vacuums, law mower, etc.).

Typically, the subsidies required to operate these options are covered as part of the FHA-allowed seller paid closing costs.

1.  FHA has very low down payment requirements and multiple down payment assistance options.

As mentioned previously, closing costs are a significant barrier to home ownership for many recent college graduates.  But, the greatest barrier to home ownership is arguably the required down payment.  Because of the current status of the housing market, the majority of the “low down payment” mortgage programs are no longer available.  Even if the investor (e.g. Fannie Mae, Freddie Mac) will accept a low down payment program, most of the private mortgage insurance companies will not insure them.  In many areas that have been deemed a declining market, the minimum down payment on a conventional loan is 10%.  This could keep many college graduates with the goal of purchasing a home from being able to do so.  Fortunately, FHA insured loans still have a low down payment requirement of 3.5% and many different options regarding how you can come up with your down payment.

Down payments for FHA loans can come from you, a family member, an employer or charitable organizations.  If you do not have the proceeds required to make the down payment, FHA loans allow for you to receive a gift from a charitable organization, an employer, a blood relative, or an unrelated individual, as long as they can document evidence of a family-type, long-standing and substantial relationship.  A gift is cash given to you voluntarily and without compensation. No conditions may be attached to this gift, nor can repayment be expected or implied.

Suppose that you do not have a family member that is willing and/or able to gift you your down payment but they will lend it to you.  In the past, this was not acceptable, but last year the Housing and Economic Recovery Act of 2008 included a provision that caused FHA loans to allow you to borrower your down payment from a family member.

If that does not work for you, FHA loans allow you to borrow your down payment against a secured asset such as an automobile, artwork, collectibles, real estate, or financial assets (such as savings accounts, certificates of deposit, stocks, bonds, and 401(k) accounts).

FHA loans also allow for your down payment to come from various down payment assistance programs.  A significant source of down payment assistance is derived from the American Dream Downpayment Initiative (ADDI).  The American Dream Downpayment Initiative (ADDI) was signed into law by President Bush on December 16, 2003.  It provides down payment, closing costs, and rehabilitation assistance up to $10,000 or six percent of the purchase price of the home to first-time homebuyers.  ADDI funds are administered as part of the HOME Investment Partnerships Program (HOME) by state and local participating authorities and HUD-approved non-profit organizations.

So, there you have it, the top 10 reasons that you and all college graduates should use a FHA loan to buy your first home.  By taking advantage of FHA’s loan options, you will not have to wait.  FHA loan programs are extremely flexible and have numerous options and benefits.  In fact, there are so many that you may have noted that I had to consolidate some similar benefits in my “top 10” list.  I figured that “the top 15 reasons that you and all college graduates should use a FHA loan to buy your first home” just doesn’t have enough pizzazz.

If you have any questions or comments, please feel free to contact me or leave a comment.

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The Obama 8000 Tax Credit for First Time Home Buyers in 2009

by Steve Lines on May 19, 2009
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What are the differences between the 2008 tax credit law and the 2009 first time home buyer tax credit law?

uncle sam cash The Obama 8000 Tax Credit for First Time Home Buyers in 2009Last year a first time home buyer tax credit of up to $7500.00 was created as part of the Housing and Economic Recovery Act of 2008.  It went into effect on April 8th, 2008 and was set to expire July 1st, 2009.  While it had good intentions, it was basically an interest-free loan from the IRS that was required to be repaid over 15 years.  

On February 17th, 2009, President Obama signed the American Recovery and Reinvestment Act that included, as one of its key provisions, a modification of the first time homebuyer tax credit.  The majority of the workings of the first time home buyer tax credit remained the same.  But, there were some impressive revisions such as the increase of the maximum credit amount to $8000.00 and the removal of the 15 year repayment requirement.  

The following is a summary of the new 2009 Obama first time homebuyer tax credit. 

Amount of the Credit

 

2008 – Lesser of 10% of the cost of the home or $7500.

2009 – Maximum credit amount increased to $8000.

Eligible Property

2008 – Any single family residence (including condos, co-ops, townhouses) that will be used as a principal residence that was not purchased from a source related to them (i.e. a spouse, parent, child, etc.).

2009 – No change, any principal residence is eligible.

Refundable

2008 – Yes, the tax credit reduces (or can eliminate) income tax liability for the year of purchase. Any unused amount of tax credit refunded to purchaser.

2009 – No change, purchasers will continue to receive refund for unused amount when tax return is filed.

Income Limit

2008 – The full amount of the credit is available for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return). It phases out above those caps ($95,000 and $170,000).

2009 – No change, the same income limits continue to apply.

First Time Home Buyer Only

2008 – Yes.  A first time homebuyer is defined by the IRS as those not having had any ownership, including that with a spouse if married, during the three-year period ending on the date of purchase.

2009 – No change.

Revenue Bond Financing

2008 – No credit allowed if home financed with state/local bond funding.

2009 – Purchasers who utilize revenue bond financing can obtain the credit.

Repayment

2008 – Yes, a portion (6.67% of credit or $500) is to be repaid each year for 15 years, starting with 2010 tax filing.

2009 – No repayment for purchases on or after January 1, 2009 and before December 1, 2009.

Recapture

2008 – If home sold before 15-year repayment period ends, then outstanding balance of repayment amount recaptured on sale.

2009 – If home is sold within three years of purchase, entire amount of credit is recaptured on sale. Applies only to homes purchased in 2009.

Termination

2008 – July 1st, 2009

2009 – December 1st, 2009

Effective Date

2008 – Purchases on or after April 9, 2008 and before January 1st, 2009. 

2009 – All revisions are effective as of January 1st, 2009

So if you buy a house under the criteria listed above, how do you claim your first time home buyer tax credit?  

File form IRS 5405 “First-Time Homebuyer Credit” along with filing the 2008 tax return (if not yet filed), an amended 2008 tax return (if already filed), or the 2009 tax return.

Everything You Want To Know About The 2009 Obama 8000 Tax Credit for First Time Home Buyers Being Used For FHA Down Payment and Closing Costs

If you have additional questions, please contact me.

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