First Time Buyer Tax Credit

With the move to allow first time buyers to monetize the $8,000.00 first time buyer tax rebate for closing costs, FHA loans are sure to capture even more of the mortgage marketplace.

While the details of the plan are still being hammered out, buyers, sellers and Realtors seem energized by the news. First time buyers made up 53% of of nationwide sales with a majority of those buyers looking for foreclosed or otherwise distressed properties.

The plan, as currently being discussed, will allow approved third party providers to extend short term bridge loans that will be repaid once the buyer receives their tax credit.

Who is eligible?

• The tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
• Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit
• Those exceeding the incomes above can still get a partial credit.

Here are examples of how a partial credit is calculated:

Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $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 $8,000 by 0.5. The result is $4,000.

Here’s 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 the phaseout range of $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.

According to the Wall Street Journal, Fannie Mae and Freddie Mac have about 60% of their inventory of foreclosed homes offered for sale. Typically they only lost 35-50% of their foreclosed inventory at any given time.

It is important for any buyer or seller to be aware of the "shadow inventory" of distressed homes not yet on the market. With a larger than usual percentage of distressed homes already on the market it would indicate that further price drops will shortly abate as inventory continues to drop.

What does this mean to you?

Buyers:

Rates are great and FHA rates are currently below conventional mortgage rates. With PMI getting tougher to get and and becoming more expensive, FHA is a great option even without the tax credit. Now that you can monetize that credit, FHA will likely take an even larger percentage of the marketplace.

Sellers:

FHA appraisals are a little more strict than conventional appraisals. To get your home ready to sell, consider making those little repairs you have been putting off. Consider offering a credit toward closing costs. FHA allows up to a 6% assist from he seller to be used toward closing costs.

Realtors: Make sure you know the FHA loan limits in your area; they vary by county. In Hunterdon County, NJ the limit is $729,000. Next door in Warren, NJ the limit is $402,500.00 while in Bucks County, PA the limit is $420,000 A link the Hud's website is below.

https://entp.hud.gov/idapp/html/hicostlook.cfm