Foreclosure Councelors: What They Can and Can't Do

Foreclosure Counselors: What They Can and Can’t Do

Foreclosure counselors can make the difference between losing your home and keeping it.

Here’s how they work and how to choose one.
A foreclosure counselor can help assess your finances and make a budget, but cannot give any tax or legal advice.

If you’re facing foreclosure, your foreclosure counselor will be a key part of your foreclosure team. As you start looking for one, however, you need to know what exactly they do, what they don’t do, and how to choose one who’s legitimate and qualified.

What a foreclosure counselor does:
Reviews your finances
Helps you establish a budget
Explains your non-foreclosure options, such as

loan modification, short sale or deed in lieu of foreclosure;

helps you navigate the process with any chosen option
Advocates on your behalf with lenders and loan servicers.

Counselors should also be upfront about discussing their

own track records as well as the track records of the agency they work for.

Read more: http://www.houselogic.com/articles/foreclosure-counselors-what-they-can-and-cant-do/#ixzz0vqTnqRA2

Expect to spend two to 24 hours with a counselor, depending on the complexity of your foreclosure situation, including how many lenders you have to provide documentation to and negotiate with.“Be sure the counselor is looking at your entire situation,” and not just your foreclosure, adds Martha Viramontes, director of housing at ClearPoint Credit Counseling Solutions in Los Angeles. “When counselors focus only on your mortgage, they’re fixing only one aspect of your financial situation.” They should give you an action plan containing the tasks you are going to perform to change your financial situation.

What a foreclosure counselor doesn’t do:
Give tax advice
Give legal advice
Give guarantees regarding a particular outcome
Create miracles

For additional advice, add a tax adviser and attorney to your team. Finally, “don’t expect a counselor to be a genie,” says Douglas Robinson, a spokesperson for NeighborWorks America, a nonprofit community development corporation in Washington, D.C., that provides foreclosure counseling. “If you’re in a home that under the most aggressive scenario you can’t afford, but maybe you got into it because of some toxic loan that should never have been available in the first place, you’re probably going to have to move. It’s best you get out smoothly.”

How to choose an agency:
Seek only HUD-approved agencies. HUD makes it easy:

Type in your state or ZIP code at http://www.findaforeclosurecounselor.org/

or call HUD’s foreclosure counseling hotline at 800-569-4287

or its foreclosure prevention hotline at: 888-995-HOPE (4673).

HUD-approved agencies are all nonprofit, community-based organizations that have administered a housing counseling program for at least a year.

HUD-approved agencies also are required to:
Employ counselors who are knowledgeable about federal housing programs.
Have a staff of counselors of which at least half must have two or more years of counseling experience.

At least half must also have received housing counseling training in the past two years.
Provide you with certain documents, such as a privacy agreement explaining how your personal information will be handled.

In addition, at the agency you work with, see if you can find a foreclosure counselor who has certification through the NeighborWorks Center for Homeownership Education and Counseling Look (NCHEC), which has a Foreclosure Intervention and Default Certification Program. Certified counselors must follow NeighborWorks counseling standards and code of ethics and conduct.

They also are required to:
Have at least one year of experience in foreclosure counseling
Attend three foreclosure prevention courses

Check out my website at: http://www.callkim.net/

Kim Duclos Coldwell Banker Wardley (888) 949-2890

Will You Owe Once Your Home is Foreclosed On?

It is extremely important to work with a Real Estate Professional in today's real estate market. Don't be left hanging off the cliff without help. I am here with hand extended and ready to assist in your real estate needs. Many homeowners facing foreclosure or perhaps negotiating on a short sale must know what the true ramifications of the default or short sale will be and what responsibility lies on their shoulders once the process is complete.

I was reading on one of my real estate informational sites and came across an interesting article in Rismedia. Please read and call me with your questions, I am here to assist you.

Home owners defaulting on mortgages today may be surprised to learn years from now that they still owe thousands of dollars—and a collection agency is coming after them to get it.
That’s because lenders have been quietly selling second mortgages and home equity lines left unpaid after foreclosures and short sales. The buyers: collection agencies, which in some states have years to make a claim. If they win court judgments, these collectors could have years to pursue borrowers with repayment plans, and even garnish their wages, said Scott CoBen, a Sacramento bankruptcy attorney.

“The only relief a consumer will have is entering into a debt negotiating plan or filing for bankruptcy,” said Sylvia Alayon, a vice president with the New York-based Consumer Mortgage Audit Center. The firm provides mortgage analysis to lenders, advocacy groups and attorneys.
The phenomenon suggests an ominous, looming echo of today’s real estate meltdown. As debt collectors surely seek at least partial repayment of millions of dollars in unpaid home loans, some say renewed financial stresses on tens of thousands of local consumers could dampen economic recovery.

“I think there will be a lot of unhappy people when it hits,” said CoBen. “We saw this in the ’90s. This is not really new. Just when you think you’re back on your feet, you’re making money and the economy’s good, they hit you with this.”

Alayon said most people are so stressed out and exhausted by trying to save their homes today that they are unaware they could face another hit later. And many who are losing homes don’t get the advice necessary to prevent future fallout, say nonprofit loan counselors.
“You’ve got tens of thousands of people in California who have this hanging over their heads who don’t even know it,” said Scott Thompson, principal at for-profit Mortgage Resolution Services in Carmichael, Calif. He fears a new wave of bankruptcies might flatten people just starting to recover from losing their homes.
“So many of these are people with 750 or 800 credit scores who made a bad decision,” said Thompson. “Or they’re people who suffered income cuts. These are people, in terms of the economy, whom we need to participate.”

But an entire industry is gearing up to buy their debt at deep discounts and collect what they can, Alayon said. “It’s a big business and investors are coming out of the woodwork. It’s a very lucrative business,” she said. Real estate insiders and financial players know it as “scratch and dent.”

Regionally, no one knows for sure how much unpaid debt is on the line. CoBen said people who used their borrowings for a traditional loan on a house in which they lived generally have little to worry about. But borrowers may be vulnerable in years ahead—generally, those who defaulted not only on their first mortgage but also on a home equity loan or second mortgage.
In California, banks can’t collect from borrowers for primary, so-called “first-lien,” loans that go unpaid. When a house is foreclosed or sold through a short sale, the lender of the first loan gets the house back or the proceeds from another buyer. But banks also made thousands of “second-lien” loans, including those used to finance 20% down payments during the housing boom. A separate category of “seconds” includes home equity loans and home equity lines of credit. Nationally, about 3.4% of those loans are currently delinquent, according to Foresight.

Owners are generally, but not always, on the hook for the second loans left over from a foreclosure or short sale. Most investor mortgages, too, leave the borrower liable for potential unpaid debt. In many short sales, experienced real estate agents or attorneys can negotiate away debt obligations for the second-lien loan. But many inexperienced borrowers don’t know that, and sign final-hour agreements giving lenders the right to pursue them later.

“Seek advice,” counseled Doug Robinson, spokesman for national nonprofit mortgage counselor NeighborWorks America. He said nonprofit counselors can help. “Often when you work with a real estate agent, they’re not really equipped to handle the repercussions. They’re set up to make the sale,” he said.

Government forces are already moving to limit potential damage to millions now struggling with home loans. A new Obama administration short sale program aims to prevent banks that hold second-lien loans from pursuing collections from homeowners after the short sale. It goes into effect April 5, 2010 and works this way: Sellers will receive notice that their servicer has steered part of the sales proceeds to secondary lien holders “in exchange for release and full satisfaction of their liens.” This release would apply only to short sales done through the administration’s Home Affordable Foreclosure Alternatives program.

In California, Democratic state Sen. Ellen Corbett recently introduced SB 1178, which would expand California’s protections for some people who refinance and take on a second mortgage.
People who refinance, but use the funds to improve their homes or to stay in their homes with a better interest rate, would be protected. Lenders could not seek court judgments to collect from these borrowers in the event of foreclosure or short sales.

“If you refinance a property and aren’t using the money for personal reasons, you shouldn’t lose your personal protections,” said California Association of Realtors lobbyist Alex Creel. He said the idea has been around for years but has become more urgent as thousands lose income and fall into mortgage trouble. The bill would apply to all foreclosures or short sales that occur after it becomes law. It doesn’t matter when the loan was made, Creel said. SB 1178 is still in the early stages of consideration. It must clear both houses of the Legislature and be signed by Gov. Arnold Schwarzenegger by Sept. 30 in order to take effect.

****** This is good information, but I will reiterate that a professional realtor can help. You must look to a EXPERIENCED LICENSED REALTOR, ask the questions about their experience and their capabilities in this volatile market.

Feel free to call me toll free @ 888-949-2890

or email me @ kim.duclos@coldwellbanker.com

RISMEDIA, March 27, 2010

Government Announces Short Sales Guidelines

The U.S. Treasury Department announced new guidelines this week designed to make short sales go more smoothly.

To qualify under these new guidelines:
The property must be the home owner’s principal residence.
The home owner must be delinquent on the mortgage or close to defaulting.
The loan must have been made before Jan. 1, 2009, and be for less than $729,750.
The borrowers’ total monthly mortgage payment must exceed 31 percent of their before-tax income.

Under the plan, borrowers will receive $1,500 from the government for selling homes for less than the amount of their mortgages.

Mortgage-servicing companies will get $1,000 for each completed short sale.

Second-mortgage holders can receive up to $3,000 of the sales proceeds in exchange for releasing their liens.

Investors who hold the first mortgage can collect up to $1,000 from the government for allowing the payments.

Borrowers who complete a short sale under the program must be "fully released" from future liability for the debt, according to the guidelines.

Source: Associated Press, J.W. Elphinstone (11/01/2009) and The Wall Street Journal, Ruth Simon (11/01/2009)

Loan Modification Plan: 7 THINGS YOU NEED TO KNOW

Brought to you by Kim Duclos of Coldwell Banker Wardley

The White House releases fresh details on its plan to save the housing market By Luke Mullins Posted March 4, 2009

At the heart of the President Barack Obama's ambitious plan to rescue the housing market is the conviction that restructuring distressed mortgages will keep struggling borrowers in their homes and help insert a floor beneath plummeting property values. With $75 billion dedicated to reworking troubled loans, that's a big bet—especially considering that a top banking regulator said last December that almost 53 percent of loans modified in the first quarter of 2008 went bad again within six months. But supporters argue that mortgage modifications need to be properly engineered to work—and many early ones weren't. To that end, the Obama administration on Wednesday unveiled fresh details on its plan to restructure at-risk loans and help as many as four million home owners avoid foreclosure. Here are seven things you need to know about Obama's loan modification program.

1. Payments, not prices: The plan centers on the belief that struggling borrowers will stay in their homes—even as values decline sharply—as long as they can make their monthly payments. Although not everyone agrees with this, billionaire investor Warren Buffett endorsed the philosophy in his most recent letter to shareholders. "Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans)," Buffett wrote. "Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay."

2. Thirty-one percent: To that end, the administration's plan requires participating loan servicers to reduce monthly payments to no more than 38 percent of the borrower's gross monthly income. The government would then chip in to bring payments down further, to no more than 31 percent of the borrower's monthly income. In lowering the payment, the servicer would first reduce the interest rate to as low as 2 percent. If that's not enough to hit the 31 percent threshold, they would then extend the terms of the loan to up to 40 years. If that's still not enough, the servicer would forebear loan principal at no interest. The plan does not, however, require servicers to reduce mortgage principal, which Richard Green, the director of the Lusk Center for Real Estate at USC, considers a shortcoming. "For underwater loans, if you don't write down the balance to be less than the value of the house, people still have an incentive to default," Green says. "Writing down the principal first instead of last—which is what [the Obama administration is] proposing—makes sense to me."

3. Cash incentives: To encourage participation, servicers will be paid $1,000 for each modification and will get an additional $1,000 payout each year for as many as three years, as long as the borrower continues making payments. Borrowers, meanwhile, can get up to $1,000 knocked off the principal of their loan each year for as many as five years if they make their payments on time. Neither party can receive the cash incentives until the modified loan payments have been made for at least three months.

4. Financial hardship: The Obama administration is pitching its plan as an effort to help responsible homeowners ensnared in the historic housing slump and painful recession—not speculators. As such, only owner-occupied, primary residences with outstanding principal balances of up to $729,750 are eligible. Occupancy status will be verified through documents, such as the borrower's credit report. In addition, the program is designed to target homeowners who are undergoing "serious hardships"—such as a loss of income—which have put them at risk of default. To participate, borrowers will have to sign an affidavit of financial hardship and verify their income with documents. "If we would have had such stringent verification over the last four or five years, we probably wouldn't be in as bad a position as we are in," says Richard Moody, the chief economist at Mission Residential. But while Moody has no objection to such verification, obtaining documents from so many homeowners could be an onerous effort. "It's going to be a very time-consuming process," he says. Only loans originated on or before Jan. 1, 2009, are eligible, and modified payments will remain in place for five years. Now that the administration's plan is out, lenders are free to begin modifying loans.

5. Net present value: To determine if a particular mortgage will be modified, the servicer will perform a so-called net present value test. The test compares the expected cash flow that the loan would generate if it is modified with the expected cash flow it would generate if it isn't. If the modified loan is expected to produce more cash flow for the mortgage holder, the servicer is to restructure the loan. Howard Glaser, a mortgage industry consultant and a U.S. Department of Housing and Urban Development official during the Clinton administration, called this component of the plan "clever," arguing that it would work to ensure broad participation. "When you apply the formula, the loans that are modified are the ones that are in the best economic interest of the investors to modify," Glaser says. "The federal subsidy for the payment on the modification…tips the scale toward modification as a better deal for the investor."

6. Second liens: The Obama plan also addresses the issue of second liens—such as home equity loans or home equity lines of credit—by offering incentives to extinguish them. But key details on this component of the plan remained unclear. "Distinguishing the second lien is really important," Green says. "[But] exactly how they are going to convince the second lien holder to do this is not clear to me at all."

7. Will it work? Moody argues that while the plan may reduce foreclosures for primary residences, it could lead to a spike in defaults for another group of homeowners. Although he supports the administration's efforts to focus the initiative on primary residences, Moody notes that "it could be the case that a lot of [real estate speculators] have been just hanging on waiting to see exactly what the details are of this [plan]," Moody says. Now that it's clear the Obama plan leaves speculators out, "we could actually see a spike in foreclosures or at least mortgage defaults among this group."
Glaser, meanwhile, worries that lenders may soon be overwhelmed by inquiries from homeowners looking to participate. "Starting today, millions of borrowers are going to start to call their lenders to see whether or not they are eligible," he said. "And I'm not sure that the financial services industry has the capacity to handle these inquiries."

PLEASE CONTACT ME IF YOU HAVE ANY QUESTIONS:

(702) 521-3939 or (888) 949-2890 and duclos24@aol.com

5 First Time Buyer Mistakes to Avoid

5 first-time buyer mistakes to avoid
Experienced homeowners share their secrets so you won't make a rookie move
By Sarah Max, Cyberhomes Senior Writer
July 10, 2009

If you're a first-time home buyer in this market, how could you go wrong? Nationally, sales prices of existing single-family homes are down nearly 24 percent since their July 2006 peak. Interest rates, recently 4.9 percent for a 30-year fixed-rate mortgage, are hovering near historic lows.
And if that isn't incentive enough, Uncle Sam is offering first-time buyers an $8,000 tax credit to further sweeten the deal.
But as any homeowner will tell you, the decision to buy a home is only half the battle. The real challenge is in the details of what, where and how much. Here are five first-time home buyer mistakes you don't want to make.

First Time Buyer Guide 2009
This is an exciting year for first time buyers, with a once in a lifetime opportunity to get the home of your dream.Gallery: Advice for First Timers+ Understanding the First Time Buyer Credit
1. Don't think that "long term" is a couple of years.
Buying a home, especially now, requires long-term planning, not just with finances, but with your career and your personal life. "The old rule was to plan on owning the house for three to four years," says Ben Hoefer, an agent with John L. Scott in Seattle. "I'm recommending that people think in terms of five to seven years."
If you don't know where you'll be a year from now, let alone seven years from now, you might want to rethink your plans to buy. A house isn't a bargain if you can't recoup your investment. The more time you can spend in the home -- comfortably -- the better the deal.
For many first-time home buyers, that means finding a house that suits their needs and their budget now but also offers room to grow -- or the option to rent. Location is another sticking point. "A lot of people will go for the better house farther out and realize, after it's too late, it's not the location they want," says Hoefer. Would the commute be manageable if you change jobs? What about school quality? These factors influence not only your sanity but also home values.
2. Don't settle for something with more wrongs than rights.
Before you get lured into an open house, spend some time figuring out how much home you can afford and browse online listings to familiarize yourself with the market. "Most first-time buyers are going to be hard pressed to get everything they want, even now," says David Krieger, general manager of Coldwell Banker Preferred in Philadelphia. But if you prioritize your needs and wants and give yourself time to look around, you have a better shot.
For More: Cyberhomes First Time Buyer Guide
That tactic worked well for Litsy Witkowski, who bought her first home last summer. "I didn't necessarily want to find a place very quickly," says Witkowski, 27, who spent more than six months looking around New Haven, Conn. During that time she saw dozens of houses and condominiums and "quickly learned what neighborhoods and styles I liked and didn't like," she says. Her home, a three-bedroom colonial with two and a half bathrooms, a finished attic and basement, and a four-season porch, was listed for $299,000; Witkowski managed to negotiate the price down to $285,000. "Taking my time was definitely the right call," says Witkowski, who shares her home with three housemates. "I think there is something to be said for walking into a place and knowing that you either love it or you don't."
3. Don't make finding an agent an afterthought. With so much information at your fingertips, it might seem old fashioned to enlist the help of a real estate agent. But, a good buyer's agent brings a lot more to the table than listings; he can walk you through everything from the loan preapproval to the home inspection and, most importantly, is obligated to put your interests first.
In hindsight, this is one thing first-time home buyer Kelcey Nichols, 34, would have done differently when she started house hunting in Santa Fe, N.M., a couple of years ago. Although she's very happy with her three-bedroom adobe-style home, she wasn't always on the same page as her agent. "We had different negotiation styles," she says. If she were buying again she would interview several agents before starting the search. "I think working with someone who really knows what you want could save you a lot of time and money," she says.
Yet, most buyers don't spend enough time looking for an agent who will represent their interests in the transaction, says Krieger. Instead, they find the home and call the listing agent, not realizing that that agent represents the seller. It's better to find your own advocate from day one. What's it going to cost you? Technically, nothing. Sellers' and buyers' agents split commissions paid by the seller. Although you could go it alone and ask the seller's agent to cut her commission and pass that savings on to you, as a first-time buyer it's likely you would do better working with a pro and looking for savings elsewhere.
4. Don't assume that every home is in foreclosure.
No doubt there are deals to be had. But just because national headlines show double-digit drops in home prices and a record level of foreclosures doesn't mean that's the case for every home in every market. Nationally, fewer than 1 percent of all housing units on the market are in foreclosure, according to first-quarter data from RealtyTrac. While you don't want to rule out foreclosed property, you don't want to limit your search to the bargain bin.
Krieger notes that the average Philadelphia seller is receiving about 97 percent of asking price. This figure will vary from month to month and even from neighborhood to neighborhood, so do your homework before putting in an offer. Now that home prices have fallen so much, many of the best deals are starting to fetch multiple offers.
5. Don't forget about all the other costs of owning a home.
After searching Salt Lake City for six months, Julia Lyon, 35, knew she'd found a winner when she walked through the front door of a circa-1901 Victorian in the Liberty Park neighborhood. The house needed a little work. But at $260,500 the price seemed fair, especially by 2006 standards.
Still, the home has gobbled up more time and money than she'd ever anticipated. "As my brother recently told me, I didn't buy a house -- I bought a project," says Lyon, who's spent about $15,000 on everything from gutting the first-floor bathroom to fencing in the backyard. "I don't want to keep ignoring problems that should have been dealt with 10 years ago," says Lyon, who got married in 2008. "But I worry that we're putting more money into some of the fixes than we may get back."
Most first-time home buyers find themselves in a similar situation: They focus so much on the sticker price that they fail to account for the other costs that come with owning a home. Some of these costs aren't optional -- closing costs, maintenance and utilities. Others -- new furniture and gardening tools, to name a few -- can add thousands of dollars to the price tag if you're not careful.
At the same time Lyon is conscious of "over improving" her home, she has no regrets about buying it. "I love my house as much today as I did the first time I saw it," she says. Unfortunately, many buyers from the boom can't say the same. "Some of the saddest homeowner stories I've heard are from people who bought too quickly -- without really understanding what was out there."

$8000 TAX CREDIT CAN BE USED ON CLOSING COSTS

HUD: Tax Credit Can Be Used on Closing Costs FHA-approved lenders received the go-ahead to develop bridge-loan products that enable first-time buyers to use the benefits of the federal tax credit upfront, according to eagerly awaited guidance from the U.S. Department of Housing and Urban Development on so-called home buyer tax credit loans that was released today.Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent.The loans can't be used to cover the minimum 3.5 percent, senior HUD officials told reporters on a conference call Friday morning. Thus, buyers applying for FHA-backed financing with an FHA-approved lender that offers a bridge-loan program can get a bridge loan to bring down the upfront costs of buying a home significantly but would still have to come up with the minimum 3.5 percent downpayment.There remain many sources of assistance for buyers needing help with the 3.5 percent downpayment, including many state and local government instrumentalities and nonprofit lenders.In addition, some state housing finance agencies have developed their own tax credit bridge loan programs, so buyers in states whose HFAs offer such programs can monetize the tax credit upfront to cover all or part of their downpayment. These programs are separate from what HUD announced today. The first-time homebuyer tax credit was enacted last year--and improved upon earlier this year--to help encourage households to enter the housing market while interest rates are low and affordability is high. The credit is worth up to $8,000 and is available to households that haven't owned a home in at least three years. The credit does not have to be repaid, and is fully reimbursable, so households can get their credit returned to them in the form of a payment.Learn more about the credit, including how to apply for it this year even if you've already filed your taxes, at REALTOR.org.

Source: Robert Freedman, REALTOR® Magazine Online

MOST FREQUENTLY ASKED QUESTIONS ABOUT THE HOME BUYER TAX CREDIT

Frequently Asked Questions About the Home Buyer Tax Credit
The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

Who is eligible to claim the tax credit?
What is the definition of a first-time home buyer?
How is the amount of the tax credit determined?
Are there any income limits for claiming the tax credit?
What is "modified adjusted gross income"?
If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Can you give me an example of how the partial tax credit is determined?
How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
How do I claim the tax credit? Do I need to complete a form or application?
What types of homes will qualify for the tax credit?
I read that the tax credit is "refundable." What does that mean?
I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?
Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?
I am not a U.S. citizen. Can I claim the tax credit?
Is a tax credit the same as a tax deduction?
I bought a home in 2008. Do I qualify for this credit?
Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?
The Secretary of Housing and Urban Development has announced that HUD will allow "monetization" of the tax credit. What does that mean?
If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?

Who is eligible to claim the tax credit?First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.
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 taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.For example, if you have not owned a home 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. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. 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.
How is the amount of the tax credit determined?The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
Are there any income limits for claiming the tax credit?Yes. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
What is "modified adjusted gross income"?Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is 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 of foreign-earned income. See IRS Form 5405 for more details.
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 $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.
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 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.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 circumstances.
How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.
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. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase.
What types of homes will qualify for the tax credit?Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.
I read 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 of the amount of the refundable tax credit.For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had 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 qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).
I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.
Instead of buying a new home from a home builder, I 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 January 1, 2009 and before December 1, 2009.In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.
Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.
I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?No. You can claim only one.
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.
Is a tax credit the same as a tax deduction?No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.
I bought a home in 2008. Do I qualify for this credit?No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit. Please consult with your tax advisor for more information.
Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 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 to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.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 tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs, which can be found here.
The Secretary of Housing and Urban Development has announced that HUD will allow "monetization" of the tax credit. What does that mean?It means that HUD will allow buyers to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.Under the guidelines announced by HUD, non-profits and FHA-approved lenders will be allowed to give home buyers short-term loans of up to $8,000.The guidelines also allow longer term loans secured by second liens to be used by government agencies, such as state housing finance agencies, to facilitate home sales.Housing finance agencies and other government entities may issue tax credit loans, the funds of which home buyers may use to satisfy the FHA 3.5% downpayment requirement.In addition, approved FHA lenders will also be able to purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5% downpayment that is required for FHA-insured homes.More information about the guidelines is available on the NAHB web site. Read the HUD mortgagee letter (pdf) and an explanation of the FHA Mortgagee Letter on Tax Credit Monetization (pdf). An FAQ about monetization (pdf) is available at the NAHB web site.
If I’m 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 returns instead of 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.Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.
For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?Yes. If the applicable income phaseout 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.