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.