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These frequently asked questions have been taken directly from the NAR Government Affairs Division website.
Question: Existing homeowner credit: Must the new house cost more than the old house?
Answer: No; Individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6500 credit. So will homeowners who are downsizing.
Question: I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. Will I qualify for the new $6500 credit?
Answer: Yes. The exiting homeowner credit goes into effect for purchases after the date of enactment (when the bill was signed – November 7th, 2009. There is no reference to the date of contract for the new credit. T he provision looks solely to the date of purchase, which is generally the date of settlement.
Question: I am a first-time homebuyer who was not within the income limits at the time I entered into my contract to purchase on October 30, 2009. Since the limits have changed, am I eligible for the credit even though I have already closed on my purchase?
Answer: Yes. the new income limitations went into effect as soon as the President signed the bill. The income limit and other eligibility rules will look to your status as of the date of the purchase.
Question: I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a non-negotiable price of $825,000. Will I be able to use any of the $6500 credit?
Answer: No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above the $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.
Question: I owned my home for 10 years, but sold it two years ago and have been renting since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility tests?
Answer: Yes. Becuase if you lived in the home for mor than 5 consectutive years of the previous 8, you will qualify fo rhte $6500 credit. For example, say John and his wife bought a home in 2000 and lived there until 2008 when they got a divorce. Whether John has been renting or has bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for 5 consectutive years out of the last 8 years. The keyword here is “consecutive.” As long as he lived in that house for 5 years straight what he did in the last 3 years does not impact eligibility.
Question: I am an eligible first-time homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?
Answer: You do not have to close before December 1. Once the legislation was signed, the November 30 date disappeared. SO, as long as the contract settles before June 30, 2010, the purchaser will be eligible for the credit.
If you have other questions that aren’t covered here, please, by all means, call me at 908-432-0318 or email me at jennifer@jenniferblanchard.com. All inquiries are confidential!
If you are ready to start looking, click here for information on homes for sale in and around Basking Ridge, NJ.
The $8,000 tax credit for first-time buyers passed by Congress earlier this year has created an excellent opportunity for those wishing to capitalize on today’s affordable housing market. Yet, with the average real estate transaction taking 45-60 days to complete, buyers wishing to claim the $8,000 tax credit should be under contract to purchase a home within the next three weeks in order to make the Nov. 30 deadline.
If you are interested in taking advantage of this large financial incentive, here are some steps to take to get the ball rolling on a home purchase:
- Engage an expert. If you have not done so already, speak with a real estate sales professional familiar with the area in which you would like to purchase a home. He or she can help you with your home search and all of the details necessary to complete your purchase.
- Visit open houses. Check the Sunday real estate section and browse online to map out a few Open Houses to visit this weekend. This allows you to easily see a variety of homes in your price range, and viewing homes in person can help you narrow down the options.
- Attend a homebuyers seminar. Register for Weichert’s “Know When Opportunity is Knocking” seminar taking place in many Weichert offices on Saturday, Sept. 26 at 11:00 a.m. The seminar is designed to educate first-time buyers about the $8,000 tax credit and the other benefits of buying a home in the current market. Contact me to reserve a seat at this great seminar.
Email me for more information on the benefits of owning a home or click here to search what is for sale in and around Basking Ridge.
In July, the National Association of Realtors (NAR) Pending Home Sales Index rose to the highest level since June 2007. Not only was the number of homes pending sale up from June, the index was also 12 percent higher than the same month last year.
Pending home sales are a good indicator of the future pace of existing-home sales, since they reflect the number of contracts that were signed to purchase a home. Once under contract, most of these pending sales become actual sales within the next two to three months.
In fact, NAR Chief Economist Lawrence Yun expects existing-home sales to rise through the fourth quarter of this year due, in part, to the $8,000 first-time buyer tax credit and high housing affordability. He said, “The buyer psychology may be shifting from ‘Why buy now when I can purchase later?’ to ‘I don’t want to miss out on a recovery.’”
If you are thinking about buying or selling a home in Basking Ridge, contact me today for all of your Basking Ridge real estate needs or visit my website to search what is currently for sale in and around Basking Ridge, NJ.
By: Tim McLaughlin, Weichert Financial
A few weeks back, HUD made good on a promise to provide guidance to lenders regarding how they can enable buyers to use the $8,000 tax credit to effectively buy down their mortgage rate by giving them a larger down payment.
Here’s how the program will work: The option is available on specific loan products. Buyers must provide a down payment of at least 3.5%, which can be a gift from a family member, employer or nonprofit, charitable organization. Lenders may then offer the monetized tax credit to supplement the initial down payment and to pay for closing costs and interest rate buy downs.
As an example, the NJ HMFA is offering a zero interest Second Lien for qualified FTHB who expect to receive a FTHB Tax Credit when they file their 2009 Federal Taxes. Upon receipt of their tax credit, the borrowers are expected to pay off this Second Lien. If the Second Lien is not paid-in-full by 6/30/10, the loan begins accruing interest at the same rate and term as the First Lien. There will be no monthly payments and payment-in-full is due upon sale of property, refinance or pay-off of the 1st lien.
NJ TCLP (Tax Credit Loan Program) provides a loan to pay down payment and/or closing costs to any Agency Home Buyer Program FTHB who meets the requirements of the Home Buyer First Mortgage Program and who is eligible for a tax credit as permitted by the federal law.
The NJ TCLP loan will not exceed $8,000 ($4,000 in the case of married filing separately) and will be secured by a second mortgage. All loans must close by November 30, 2009. The borrower will pledge to apply the refunds received in 2010 from the first-time home buyer tax credit toward the repayment of the TCLP loan.
Again, the NJ TCLP loan requires no monthly payment. The full principal amount together with any accrued interest shall be due and payable upon the sale or refinance of the property or until the applicant ceases to occupy the property as their primary residence, whichever occurs first.
Not many originators that we see are currently offering this Tax Credit Loan Program, but in states where it is available, Weichert Financial is once again out in front, offering this along with a full slate of financing options to get the house of your dreams…we can help! Ask us how!
Q. What is the credit?
A. The first-time homebuyer credit is a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008. For homes purchased in 2008, the credit operates like an interest-free loan because it must be repaid over a 15-year period.
The credit was expanded in 2009 for homes purchased in 2009, increasing the amount of the credit and eliminating the requirement to repay the credit, unless the home ceases to be your principal residence within the 36-month period beginning on the purchase date.
Q. How much is the credit?
A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 ($8,000 if you purchased your home in 2009) for either a single taxpayer or a married couple filing a joint return, but only half of that amount for married persons filing separate returns. The full credit is available for homes costing $75,000 or more ($80,000 if purchased after Dec. 31, 2008, and before Dec. 1, 2009).
Q. Which home purchases qualify for the first-time homebuyer credit?
A. Any home purchased as the taxpayer’s principal residence and located in the United States qualifies. You must buy the home after April 8, 2008, and before Dec. 1, 2009, to qualify for the credit. For a home that you construct, the purchase date is considered to be the first date you occupy the home.
Taxpayers (including spouse, if married) who owned a principal residence at any time during the three years prior to the date of purchase are not eligible for the credit. This means that you can qualify for the credit if you (and your spouse, if married) have not owned a home in the three years prior to a purchase. If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 or 2009 income tax return.
Q. Can I apply for the credit if I bought a vacation home or rental property?
A. No. Vacation homes and rental property do not qualify for this credit.
Q. Who is considered to be a first-time homebuyer?
A. Taxpayers who have not owned another principal residence at any time during the three years prior to the date of purchase.
Q. When do I have to buy a new home to get the credit?
A. The home must be purchased after April 8, 2008, and before Dec. 1, 2009, in order to obtain the credit. For a home you construct, the purchase date is considered to be the date you first occupy the home.
Q. How do I apply for the credit?
A. The credit is claimed on new IRS Form 5405, First-Time Homebuer Credit, and filed with your 2008 or 2009 federal income tax return.
Q. Are there income limits?
A. Yes. The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on your modified adjusted gross income (MAGI). For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000. This means that the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.
Q. Can a taxpayer claim the first-time homebuyer credit after entering into a contract for the purchase of a residence but before closing on the purchase?
A. No. Taxpayers cannot claim the credit before there is a completed sale and purchase of the residence. The sale and purchase are generally completed at the time of closing on the purchase. (New 7/2/09)
Q. Can a taxpayer claim the first-time homebuyer credit if the purchase is pursuant to a seller financing arrangement (for example, a contract for deed, installment land sale contract, or long-term land contract), and the seller retains legal title to secure the taxpayer’s payment obligations?
A. If the taxpayer obtains the “benefits and burdens” of ownership of a residence in a seller financing arrangement, then the taxpayer can claim the credit even though the seller retains legal title. Factors that indicate that a taxpayer has the benefits and burdens of ownership include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property. (New 7/2/09)
Q. I purchased a home that qualifies for the first-time homebuyer credit. I will be renting two of the bedrooms and reporting the rental income on Schedule E. Will I still qualify for the credit if I use the home as my principal residence?
A. Yes, if you meet all first-time homebuyer eligibility requirements. See Form 5405, First-Time Homebuyer Credit, for more details.
Q. If two unmarried people buy a house together, how do they determine how much each may take of the credit?
A. IRS Notice 2009-12 provides guidance for allocating the first-time homebuyer credit between taxpayers who are not married.
Q. I am a single co-owner of a home. How do I get this credit?
A. Depending on the year of purchase, you will claim the credit on either your 2008 or 2009 federal income tax return.
Q. I don’t owe taxes and/or my income is exempt from tax and I do not have a filing requirement. Do I qualify for the credit?
A. The credit is fully refundable and, if you qualify as a first-time homebuyer, having tax-exempt income will not preclude eligibility. Although there are maximum income limits for qualifying first-time homebuyers, there are no minimum income criteria. Thus, someone with no taxable income who qualifies as a first-time homebuyer may file for the sole purpose of claiming the credit for a refund.
Q. Does the first-time homebuyer credit apply to homes located in the U.S. Territories?
A. No.
Q. Would I be considered a first time homebuyer if I owned a principle residence outside of the United States within the previous three years?
A. Yes. A taxpayer who owned a principal residence outside of the United States within the last three years is not disqualified from taking the credit for a purchase within the United States.
Q. If qualified, are homebuyers required to claim the first-time homebuyer credit?
A. No.
Q. Who cannot take the credit?
A. If any of the following describe you, you cannot take the credit, even if you buy a new home:
Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
You do not use the home as your principal residence.
You sell your home before the end of the year.
You are a nonresident alien.
You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
Your home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
You owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.
Q. Does previously inheriting a home and living in the inherited home automatically disqualify an individual as a first-time homebuyer with respect to a different home that is purchased within the prescribed 2008 and 2009 time frames?
A. Yes, an ownership interest in a prior principal residence would preclude the taxpayer from being considered a first-time homebuyer. As long as the taxpayer owned and used the prior home as his principal residence, then he is not a first-time homebuyer. There is no exception for taxpayers who did not buy their prior residences. (05/06/09)
Q. Is a step-relative considered a related party?
A. Step-relatives are neither ancestors nor lineal descendents and are therefore not related persons for purposes of the first-time homebuyer credit. (05/06/09)
Q. If I claim the first-time homebuyer credit in 2009 and stop using the property as my main home before the 36 month period expires after I purchase, how is the credit repaid and how long would I have to repay it?
A. If, within 36 months of the date of purchase, the property is no longer used as the taxpayer’s principal residence, the taxpayer is required to repay the credit. Repayment of the full amount of the credit is due at that time the income tax return for the year the home ceased to be the taxpayer’s principal residence is due. The full amount of the credit is reflected as additional tax on that year’s tax return. Form 5405 and its instructions will be revised for tax year 2009 to include information about repayment of the credit. (05/06/09)
Q. If a person does not actually make the payments on a home that’s their primary residence, but the deed and mortgage documents are in their name, can they be considered a first-time home buyer?
A. Yes. If a taxpayer purchases a home to be used as a primary residence from an unrelated person and has not owned a home within the previous 36 months, the taxpayer is eligible for the first-time homebuyer credit regardless of who makes the mortgage payment. (05/06/09)
The market in Basking Ridge is currently at an inventory level of 7 months (246 available properties, 35 sales in the last 30 days). This is a very healthy market – especially given the negative press that the real estate market is getting!
There have been 10 sales in Basking Ridge so far in July – at various price points as follows:
- under $300,000: 4 sales
- $300,000 and $500,000: 1 sale
- $500,000 and $800,000: 2 sales
- $800,000 and $1,000,000: 1 sale
- over $1,000,000: 2 sales
Breakdown of absorption rate by price range:
- under $300,000 there are 33 available properties, 8 sales in the last 30 days, absorption rate: 4.1
- $300,000-$500,000 there are 49 available properties, 5 sales in the last 30 days, absorption rate: 9.8
- $500,000 and $800,000 there are 81 available properties, 8 sales in the last 30 days, absorption rate: 10.1
- $800,000 and $1,000,000 there are 24 available properties, 3 sales in the last 30 days, absorption rate: 8
- over $1,000,000 there are 61 available properties, 11 sales in the last 30 days, absorption rate: 10.1
Weichert has been studying market conditions for more than three decades and has found a direct correlation btween market absorption and property values. As absorption rates increase over the normal rate of 5-6 months, property values decline annually. I emphasize annually because as I have mentioned before, looking at absorption rates too frequently is like getting on the scale every day when you are trying to lose weight! They tend to fluctuate regularly, so it is important to look at them as they trend in one direction or the other. Compare today’s absorption rate to the last time I reported it in June. The theme I continue to notice is that the rates are decreasing in the lower price ranges first! I believe that the real estate market recovery will be a bottom up trend driven by the first time home buyer. Once again, fueled by the first time home buyer tax credit!
Are you interested in what is available in Basking Ridge – or any of the surrounding areas? You can search for listings on my website. As always: no obligation, just information!