More FAQs about the Tax Credit

Does the tax credit ever have to be repaid?

Neither the first-time home buyer tax credit nor the repeat home buyer tax credit have to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase.

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 $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.

How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?

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 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).

No other applications 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 repeat 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. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home 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, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.

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 after November 6, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April 30, 2010).

I am a first-time buyer but my husband previously owned a home that he sold two years ago. Will I qualify for the $8,000 first-time buyer tax credit?

No. Married couples are not eligible to claim the first-time home buyer tax credit if either spouse has previously owned a home within the past three years. They may, however, qualify for the repeat home buyer tax credit.

I would like to purchase my grandmother's home. Will I be eligible for the tax credit?

No. Home purchases from relatives of the taxpayer or the taxpayer’s spouse do not qualify for the tax credit. The IRS defines relatives as ancestors (parent, grandparent, etc.), lineal descendants (child, grandchildren, etc.) and spouses.

Take Advantage of the Home Buyer Tax Credit in 2010

A new year, a newly extended and expanded tax credit! Both first-time and repeat buyers may be eligible to take advantage of the tax credit in 2010. While buyers have until April 30, 2010, to be under contract, you won't want to procrastinate and potentially miss out on one of the best opportunities in real estate....and up to 8,000 incentives to buy now!

First-time buyers (defined as someone who has not owned a home in the past three years) can qualify for 10% of the purchase price, up to a maximum of $8,000. Repeat buyers (defined as someone who has owned a primary residence for five out of the past eight years) can qualify for 10% of the purchase price, up to a maximum of $6,500.

To qualify, the home must be used as a primary residence, must be under $800,000 and there are income limits of up to $125,000 for individual filers, $225,000 for married couples filing jointly. There is a modified tax credit available for some higher income individuals/couples.

The tax credit does not have to be repaid if the home is used as the primary residence for at least three years.

For more information, contact your Nothnagle agent or visit: www.realtor.org as well as the IRS information page.

Using a 203K Loan to Pay for Home Repairs

The 203K loan can be used for small repairs (with a minimum of $5000 of work) like a new roof or replacing the boiler, all the way up to practically rebuilding the home and anything in between. Maybe you love a home, the neighborhood, etc., but you hate the kitchen cabinets...the 203K may be for you.

Eligible borrows can receive a mortgage to purchase the home AND establish a Rehab Escrow Account to fund the agreed renovations. The Rehab Escrow Account is managed like a Construction Loan: money is released after work is completed, the property is inspected by the lender, and the title is updated. Like all FHA loans, the property must be owner occupied and loan approval requires full documentation of income, assets and credit worthiness. At the same time, underwriting guidelines have some flexibility built in.

Loans are processed in the same fashion as any other loan (in terms of income, asset and credit) with the exception of the appraisal. Appraisers work in conjunction with the home improvement contractor and a HUD Approved Pre-Planner to determine: “As-Is” Value, “After-Improved” Value, costs of construction, and the draw schedule of the renovation portion of the loan. This work typically adds about a week to the approval process, largely because it should be done BEFORE contracts are signed. HUD provides a calculator tool on their website to help you calculate the mortgage amount and cash requirements.

There is a Streamline(k) Limited Repair Program for projects that require less than $35,000 of repairs.

It is recommended that you work with an experienced loan officer when exploring the 203K Program, as there are many details that need to be considered (from selecting a qualified contractor to the inner workings of the draw schedule and preparing for different contingencies). While the program is more intricate, with the right education ahead of time, it is extremely manageable.

Nothnagle has two mortgage partners to assist you in finding out if the 203K program is right for you.

Another Big Gain in Existing-Home Sales

Another Big Gain in Existing-Home Sales as Buyers Respond to Tax Credit
Washington, December 22, 2009

Existing-home sales rose again in November as first-time buyers rushed to close sales before the original November 30 deadline for the recently extended and expanded tax credit, according to the National Association of Realtors®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 7.4 percent to a seasonally adjusted annual rate1 of 6.54 million units in November from 6.09 million in October, and are 44.1 percent higher than the 4.54 million-unit pace in November 2008. Current sales remain at the highest level since February 2007 when they hit 6.55 million.

Lawrence Yun, NAR chief economist, said the rise was expected. “This clearly is a rush of first-time buyers not wanting to miss out on the tax credit, but there are many more potential buyers who can enter the market in the months ahead,” he said. “We expect a temporary sales drop while buying activity ramps up for another surge in the spring when buyers take advantage of the expanded tax credit, which hopefully will take us into a self-sustaining market in the second half of 2010. In all, 4.4 million households are expected to claim the tax credit before it expires and balance should be restored to the housing sector with inventories continuing to decline.”

An NAR practitioner survey shows first-time buyers purchased 51 percent of homes in November, compared with an upwardly revised 50 percent of transactions in October.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.88 percent in November from 4.95 percent in October; the rate was 6.09 percent in November 2008. Last month’s mortgage interest rate was the second lowest on record after bottoming at 4.81 percent in April 2009.

Total housing inventory at the end of November declined 1.3 percent to 3.52 million existing homes available for sale, which represents a 6.5-month supply3 at the current sales pace, down from an 7.0-month supply in October.

Raw unsold inventory figures are 15.5 percent below a year ago. The last time there was a lower supply of homes on the market was April 2006 when it was at a 6.1-month supply.

“Nearly all markets experienced a solid sales gain from one year ago,” Yun said. “The only markets with measurably lower sales were in San Diego, Riverside, and Sacramento, where inventory shortages for lower priced homes are limiting sales.”

For the second month in a row, sales have risen in all price classes from a year earlier. Prior to October, the only consistent gains were in the lower price ranges.

The national median existing-home price4 for all housing types was $172,600 in November, which is 4.3 percent below November 2008. Distressed properties, which accounted for 33 percent of sales in November, continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes in the same area.

Single-family home sales jumped 8.5 percent to a seasonally adjusted annual rate of 5.77 million in November from a level of 5.32 million in October, and are 42.1 percent above the pace of 4.06 million in November 2008. The median existing single-family home price was $171,900 in November, down 4.4 percent from a year ago.

Existing condominium and co-op sales in November were unchanged from a seasonally adjusted annual rate of 770,000 in October, but are 60.1 percent above the 481,000-unit pace a year ago. The median existing condo price5 was $178,000 in November, which is 3.1 percent below November 2008.

Regionally, existing-home sales in the Northeast rose 6.6 percent to an annual level of 1.13 million in November, and are 52.7 percent higher than November 2008. The median price in the Northeast was $223,400, down 13.1 percent from a year ago.

Existing-home sales in the Midwest increased 8.4 percent in November to a pace of 1.55 million and are 53.5 percent above a year ago. The median price in the Midwest was $140,800, a decline of 0.4 percent from November 2008.

In the South, existing-home sales rose 4.8 percent to an annual level of 2.39 million in November and are 44.8 percent higher than a year ago. The median price in the South was $151,400, down 1.4 percent from November 2008.

Existing-home sales in the West increased 10.6 percent to an annual rate of 1.46 million in November and are 28.1 percent above November 2008. The median price in the West was $231,100, which is 4.1 percent below a year ago.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

Ontario Branch Raises Money for Red Kettle Challenge

Fifteen agents from the Ontario branch recently braved the cold temperatures to volunteer to collect money for the Salvation Army's Red Kettle Campaign. The project was in partnership with Boy Scout Troop 127, who is hosting a local "Red Kettle Challenge" that Nothnagle Realtors, along with other area businesses and groups, are participating in. The winner will be awarded a trophy and will compete again in next year's Challenge. The winner is not selected by the amount of money they raise, but by the unique way manner in which they appeal to the public.

Nothnagle agents dressed up as Santa and his helper elves, handing out candy as shoppers entered the Ontario Tops market. It was a great experience for our agents, who raised over $1,000 in donations and had a fun time doing it! The Ontario branch is proud to participate with the local Boy Scout troop, to demonstrate to our local youth striving to do good deeds in their community.

Special Provisions for Military in Tax Credit Law

Armed services members, as well as intelligence service and foreign service personnel, who are on active duty and out of the U.S. for 90 days during any part of 2009, will have an additional year to buy their homes and still qualify for the tax credit. The deadline to be under contract for qualifying personnel is April 30, 20ll (versus April 30, 2010 for other purchasers).

For military and other covered personnel, another benefit is a waiver on the time of occupancy of the home purchased with the tax credit. Homebuyers who purchase their home using the tax credit must use that home as a principal residence for a period of no fewer than three years, or must forfeit the entire credit. Military, intelligence and foreign service members do not have to repay the credit if they have to sell their home after fewer than three years occupancy due to official business.

First-time homebuyers who are eligible can obtain a tax credit of $8,000. Current homeowners are eligible for a $6,500 tax credit, provided they have lived in the home they are selling, or have sold, as principal residence for five consecutive years in the past eight years.

Income limits for eligible home buyers are expanded to $125,000 for single buyers and $225,000 for couples. The purchase price of the home cannot exceed $800,000. To help guard against fraud, buyers are required to attach documentation of purchase to their tax return.

11 Benefits of Nothnagle Relocation Services

Looking to purchase a vacation home outside of New York? Relocating outside of the Rochester area? Have a family member in need of an agent in another market? Many people think of Nothnagle as servicing only Western/Central New York but through our affiliation with the Leading Real Estate Companies of the World member network, we can move you from anywhere to anywhere....across the state, across the country, even around the globe.

Benefits of our referral service include:

• An introduction to pre-screened, well matched Leading Real Estate Companies of the World real estate associates in over 10,000 communities worldwide.

• Free cost of living analysis before your first trip to the destination location.

• Comprehensive community information on over 10,000 communities worldwide.

• Rental assistance from our members specializing in rental and property management nationwide.

• Superior international relocation assistance through our 33 international members and other international firms who have agreed to cooperate with Leading Real Estate Companies of the World members.

• A comparative market analysis of any property in over 10,000 communities worldwide if you are interested in selling.

• Listing exposure in 33 countries and on 650 different websites for any property listed with a member of Leading Real Estate Companies of the World member.

• Premier marketing services for luxury home listings.

• Choice of home warranty programs nationwide.

• Discounts on household goods shipment if you are moving items between two states.

• Free consultation regarding corporate relocation policies and benefits from RELO Direct, Inc.

Ready to get started? Call 1-800-295-MOVE or relo@nothnagle.com. Same great service you've come to know here in Rochester....anywhere!

News on Home Equity Lines of Credit

As the housing market shows signs of stabilizing, lenders are starting to write home equity lines of credit (HELOC) again according to Money Magazine. The credit crisis and housing bust that occurred in various parts of the country led to thousands of homeowners having their HELOC cut or frozen and requests for new lines of credit rejected.

They may not be the bargain they used to be, but a line of credit can still be an inexpensive way for homeowners to borrow against the equity in their home. Previously, lenders often offered HELOCs at rates below prime. Today, HELOCs are being offered at prime plus a point or so.

If you are thinking of getting a HELOC, homeowners must have more than 20 percent equity in their home. Because lenders are only writing half as many home equity lines as they did when the economy and the real estate market were booming, homeowners are advised to borrow less and to spend wisely. HELOCs are not advised to be used on vacation or other non-necessities. Typically homeowners will use a HELOC for home improvements, in place of car loans or other private loans that have higher interest rates.

Our mortgage partners can help you learn more about qualifying for a line of credit.

Real Estate Market Report

On a national level, the Pending Home Sales Index rose 3.7% from September to October 2009, with the greatest increase (19.9%) in the Northeast. Even more significant, the increase in the Index from October 2008 to October 2009 (31.8%) was the largest increase ever recorded since the Index was established in 2001 by the National Association of REALTORS (NAR).

The Index is a forward looking indicator based on contracts signed during the previous months. Both national and local statistics indicate that there was a pent up demand of renters who purchased their first home this year and likely took advantage of the first-time buyers tax credit. NAR estimates that 350,000 buyers would not have purchased in 2009 if it were not for the tax credit. 47% of all buyers in 2009 were first-time buyers, according to the 2009 NAR Profile of Home Buyers and Sellers, and nearly 2 million buyers will take advantage of the tax credit in 2009.

It's anticipated that the expanded and extended tax credit will boost home sales by 15% in 2010. There is a lot of opportunity for real estate consumers in today's market -- 1st time buyers, repeat buyers and sellers.

1. First-Time Buyers: Continue to qualify for up to an $8,000 tax credit and income limits were increased to $125,000 (individual)/$225,000 (married), allowing even more purchasers to now qualify.

2. Repeat Buyers: The tax credit has been expanded to include repeat buyers who owned and resided in a primary residence for a minimum of 5 of the last 8 years. The same income limits apply as indicated above.

3. Sellers: Buyers need inventory to choose from! Nationally, properties on the market have been declining month to month. With the influx of buyers anticipated to enter the market in response to the tax credit, if you're thinking of selling there may not be a better time to list your property than now.

Looking to buy or sell? Need more information on the tax credit? Nothnagle agents have the training, skills and expertise to navigate through all types of market conditions. Contact a Nothnagle agent directly or select our Live Chat feature on Nothnagle.com to get started.

7 Easy Improvements to Prepare Your Home for Sale

When preparing your home for sale, you want to maximize your efforts while minimizing your costs. Now is the time to make your home sparkle! But aside from giving it a good cleaning and removing clutter, here is a list of several things you can do -- at minimal cost -- to help improve your odds for a fast sale at maximum price.

1. Replace your mailbox. Is your mailbox old, dull and rusty? Buyers notice the little details. Replace or restore your mailbox, one of the first things people will see when they approach your home. Well kept accessories demonstrates good maintenance of your property and shows attention to detail.

2. Spruce up your kitchen cabinets. Adding door knobs and drawer handles can make a big difference in your kitchen. Cupboards looking dull? Add a fresh coat of white paint to brighten up the kitchen interior.

3. Pay close attention to cleaning light switch covers. No one wants to see finger prints and dingy covers! If you can't clean up the existing covers, buying new covers is a minor expenditure that can reap great rewards.

4. Replace your toilet seats. Especially if they look worn. You'll be amazed at the huge difference it will make to brighten your bathroom and make your toilets look like new.

5. How does your front door look? A fresh coat of paint and a new door knocker will be very inviting.

6. Freshen up your floors by regrouting your tile. Especially if you have white or light-colored grout! Home improvement stores make this home improvement easy and cost effective while making your tiled floors look like new.

7. Add decorative tiles in the kitchen or bath. Your local home improvement store may even offer "how to" seminars for you to learn how adding a few tiles can make your rooms look modern while adding a little pizzaz.

What You Can Do to Improve Your Credit

Credit scores, along with your overall income and debt, are big factors in determining whether you’ll qualify for a loan and what your loan terms will be. So, keep your credit score high by doing the following:

1. Check for and correct any errors in your credit report. Mistakes happen, and you could be paying for someone else’s poor financial management.

2. Pay down credit card bills. If possible, pay off the entire balance every month. Transferring credit card debt from one card to another could lower your score.

3. Don’t charge your credit cards to the maximum limit.

4. Wait 12 months after credit difficulties to apply for a mortgage. You’re penalized less for problems after a year.

5. Don’t order items for your new home on credit — such as appliances and furniture — until after the loan is approved. The amounts will add to your debt.

6. Don’t open new credit card accounts before applying for a mortgage. Too much available credit can lower your score.

7. Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.

8. Avoid finance companies. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management.

This information is copyrighted by the Fannie Mae Foundation and is used with permission of the Fannie Mae Foundation. To obtain a complete copy of the publication, Knowing and Understanding Your Credit, visit www.homebuyingguide.org.

Architecture Guide - Residential Styles of Homes

Every area has residential styles unique to it. In Rochester for example, homes typically fall into the categories of Cape Cod, Ranch, Colonial and Split-level. In other parts of the country, other styles are more traditional, e.g. Pueblo/Spanish Eclectic in the Southwest; Saltbox in New England; Greek Revival in the South. REALTOR Magazine features a "Residential Styles" guide which includes illustrations, photographs, and detailed descriptions about popular styles. Plus, use the Home Features guide to learn about architectural elements such as dormers, roofs, and arches that make a property distinct. You'll also find a regular column with interesting articles that educate readers about residential architectural styles and trends.

5 Factors That Determine Credit Score

Credit scores range between 200 and 800, with scores above 620 considered desirable for obtaining a mortgage. The following factors affect your score:

1. Your payment history. Did you pay your credit card obligations on time? If they were late, then how late? Bankruptcy filing, liens, and collection activity also impact your history.

2. How much you owe. If you owe a great deal of money on numerous accounts, it can indicate that you are overextended. However, it’s a good thing if you have a good proportion of balances to total credit limits.

3. The length of your credit history. In general, the longer you have had accounts opened, the better. The average consumer's oldest obligation is 14 years old, indicating that he or she has been managing credit for some time, according to Fair Isaac Corp., and only one in 20 consumers have credit histories shorter than 2 years.

4. How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay them promptly.

5. The types of credit you use. Generally, it’s desirable to have more than one type of credit — installment loans, credit cards, and a mortgage, for example.

For more on evaluating and understanding your credit score, visit www.myfico.com.

Home Inspection vs. Appraisal

A home inspection and an appraisal are two completely different things. In simple terms, an inspector evaluates the condition of your home; an appraiser estimates the value of the home. Both are important because 1) you want to make sure the home you are buying is in good condition; and 2) you want to make sure you're not borrowing more than the home is worth.

During a home inspection, a qualified inspector takes an in-depth and impartial look at the property you plan to buy. The inspector will:

1. Evaluate the physical condition: the structure, construction and mechanical systems.
2. Identify items that should be repaired or replaced.
3. Estimate the remaining useful life of the major systems (such as electrical, plumbing, heating, air conditioning), equipment, structure and finishes.

If an inspector uncovers a problem above and beyond his/her expertise, they may recommend further testing or inspection. Being that a home is likely to be the largest single purchase an individual will make in a lifetime, Nothnagle agents will always recommend that you conduct a home inspection prior to purchase.

An appraiser will use various methods to estimate the value of the property you are purchasing. Lenders require an appraisal because they, like you, want to make sure the home is not being financed for more than it is actually worth. It needs to be "marketable."

Appraisers will compare the home to other similar homes in the area that sold within a specific time period. Similar to when an agent runs "comparables" of homes that sold or were recently listed when helping a seller properly price their home, an appraiser runs "comps" too.

For buyers who are getting an FHA mortgage, the appraisal process is slightly different. FHA requires a more visual inspection to meet FHA guidelines and requirements.

FHA appraisers are looking for conditions related to safety, security and soundness. There are certain defective conditions that an appraiser may find are required to be remedied or will require further inspection by a qualified expert, such as evidence of termites, inoperative plumbing/heating/electrical systems, leaking or worn out roof, cracked masonry or foundation damage and drainage problems. Cosmetic repairs are considered in the overall condition rating and valuation (i.e. worn carpet, crack in windowpane).

Again, even though an FHA appraisal looks at certain conditions it DOES NOT take the place of a professional home inspection. Costs add up when purchasing a home, however cutting back on spending a few hundred dollars on a professional inspection is not recommended when the lack of an inspection could cost thousands in repairs down the road.

Tips to Improve Your Credit Score

A credit score is a complex mathematical model that evaluates many types of information in a credit file. A credit score is used by a lender to help determine whether a person qualifies for a particular credit card, loan, or service. Most credit scores estimate the risk a company incurs by lending a person money. Generally, the higher the score, the less risk the person represents.

Lenders place a lot of emphasis on credit scores when evaluating whether or not they are going to approve a mortgage application. With that said, it does not mean that if you don't have a high score you won't be able to find financing (see previous post re FHA mortgages). Here are a few tips to help improve your credit score.

1. Review your credit report. Did you know that you are entitled to one free credit report every 12 months from each of the three credit bureaus? AnnualCreditReport.com is a FREE service that will allow you to pull reports from Experian, Equifax and TransUnion. It is important to look at all three agencies and to review each report for accuracy. It is not unusual to find a mistake or incorrect information.

2. Report credit report mistakes. If you find an error, you should file a dispute to correct the inaccuracies. The credit bureaus have procedures to follow that you can find on their website.

3. Pay EVERYTHING on time! This is so important as your payment history accounts for approximately 35% of your credit score. Even if some months you can only make the minimum payment, make sure it gets to the creditor before the due date.

4. Don't cancel those credit cards! Pay off your balances yes, but then keep the card open. This will increase the length of your credit history. Frequently opening and closing accounts can lower your score.

5. Keep credit card balances low. Even if you pay off your cards every month, a high average balance will impact your score. It’s better to have several credit cards open with low balances (i.e. 25% of your available credit) versus one card with a high balance.

6. If you're having trouble paying your bills, contact your creditors immediately. Tell them why it's difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don't wait until your accounts have been turned over to a debt collector. At that point, even if you pay off collection accounts it will remain on your credit report for seven years.

7. Don't keep opening new credit cards in order to "build up your credit." Every time a lender runs a credit check on you, an inquiry is recorded. The more inquiries, the lower the score. Again, lenders look at length of credit history so keeping a paid-off card open is more important than opening up new lines of credit.

8. Beware of credit repair scams. Don't do business with any company that:

* Wants you to pay for credit repair services before any services are provided;
* Does not tell you your legal rights and what you can do yourself — for free;
* Recommends that you not contact a consumer reporting company directly;
* Suggests that you try to invent a "new" credit report by applying for an Employer Identification Number to use instead of your Social Security number;
* Advises you to dispute all information in your credit report or take any action that seems illegal, such as creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution.

Home Improvements Cost vs. Value

Thinking of remodeling? Adding on? When planning projects, many homeowners look at the possibility of recouping the cost down the road when they sell the home. A recent study ranked improvements and found the most cost recouped in these top four improvements:

1. Vinyl siding replacement
2. Deck addition (wood; also one of the least expensive)
3. Minor kitchen remodel
4. Window replacement (vinyl or wood)

The projects that recouped the least amount of the cost are:

1. Home office remodel
2. Sunroom addition
3. Installation of a backup power generator
4. Bathroom addition

For more information, read the article on Remodeling Magazine's survey of cost vs. value.