FIRST-TIME HOME BUYER TAX CREDIT FACT SHEET

WHO IS ELIGIBLE

• The $7,500 tax credit is available for first-time home buyers only.
• The law defines a first-time home buyer as a buyer who has not owned a home during the past three years.
• All U.S. citizens who file taxes are eligible to participate in the program. 

INCOME LIMITS

• Home buyers who file as single or head-of-household taxpayers can claim the full $7,500 credit if their modified adjusted gross income (MAGI) is less than $75,000.
• For married couples filing a joint return, the income limit doubles to $150,000.
• Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyers tax credit. 
• Married couples who earn between $150,000 and $170,000 are eligible to receive a partial first-time home buyer tax credit.
• The credit is not available for single taxpayers who MAGI is greater than $95,000 and married couples with an MAGI that exceeds $170,000.

EFFECTIVE DATE FOR THE TAX CREDIT

• First-time home buyers would receive a $7,500 tax credit for the purchase of any home on or after April 9, 2008 and before July 1, 2009.  To qualify, you must actually close on the sale of the home during this period.

TAX CREDIT IS REFUNDABLE

• A refundable credit means that if you pay less than $7,500 in federal income taxes, then the government will write you a check for the difference.
• For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $2,500 payment from the government.
• If you are due to receive a $1,000 tax refund from the government, your refund would grow to $8,500 ($1,000 plus $7,500 from the home buyer tax credit).
• Buyers can take the tax credit credit in their 2008 or 2009 tax return.
• If you purchase the home in 2008, the tax credit is taken on your 2008 tax return.  If you buy in 2009, you have the option of taking the credit on your 2008 or 2009 tax returns.

TYPES OF HOME THAT QUALIFY FOR THE TAX CREDIT

·         All homes, whether single-family, townhomes, or condominium apartments will qualify, provided that the home will be used as a principal residence and the buyer has not owned a home in the prior three years.  This also includes newly-constructed homes. 

PAYBACK PROVISIONS

·         The tax credit assentially serves as an interest- free loan to be repaid over 15 years.

·         For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year.  However, the buyer doesn’t have to start repaying the credit until two years after the tax year in which the credit is claimed. 

·         If the home owner sold the home, then the remaining credit would be due from the profit of the home sale. 

·         If there was insufficient profit, then the remaining credit payback would be forgiven. 

FOR MORE DETAILS ON THE TAX CREDIT, GO TO www.federalhousingtaxcredit.com  

Article courtesy of Katie Furgeson, Countrywide Home Loans

What the Government takeover of Fannie Mae and Freddie Mac means to YOU.

As we were publishing last week, the news was coming out about the Federal Government’s takeover of Fannie Mae and Freddie Mac. By now we have had an initial reaction and can speculate about the future. First a little background. Fannie Mae and Freddie Mac, known as the agencies, were set up by the government as private corporations to purchase conventional loans that are now known as conforming mortgages. They are huge in the mortgage markets, touching over 50% of the mortgages originated in our nation. When the secondary market collapsed and defaults skyrocketed, the agencies did not run out of money. However, they lost the ability to raise money in reserve against losses. That is what happens when your stock goes from $70 to $2 per share.

The immediate reaction to government control? Lower rates! Rates are down sharply on mortgages. Now the secondary market has more confidence with the government backing the housing industry in a big way. If the agencies run out of money they can go to the Treasury for money. This has been a crisis of confidence and the increased confidence can actually help us out of the housing crisis more quickly. If rates go lower then more people buy homes. Then housing prices stop going down and there are fewer defaults and the markets become more confident. This, in turn, causes rates to go down further and so on. In the long run–we will have to watch how a larger Federal budget deficit could cause long-term rates to rise. For now, buyers are advised to take advantage of lower rates and lower housing prices for a very unique buying opportunity. Because we can never predict how long these opportunities will last. Next week, more speculation about the future.

The Markets. Rates went down significantly in the wake of the government takeover of the agencies. Freddie Mac announced that for the week ending September 11, 30-year fixed rates averaged 5.93%, down sharply from 6.35% the week before. The average for 15-year fixed plunged to 5.54%. Adjustable reaction was more moderate with the average for one-year adjustables increasing slightly to 5.21% and five-year adjustables falling to 5.87%. A year ago 30-year fixed rates were at 6.31%. "Interest rates for 30-year fixed are down almost 0.6 percentage points over the past 4 weeks, which will help to spur home purchases and loan refinancing in coming weeks," said Frank Nothaft, Freddie Mac vice president and chief economist. "This means that the monthly principal and interest payment on a new $200,000 loan is over $76 lower than a month ago. Lower rates have occurred at an opportune time, as the July pending sales data from the National Association of Realtors were off 3.2 percent from June. The Mortgage Bankers Association reported that refinance applications are up 18 percent over the past 3 weeks through September 5th, indicating that refinance activity has already begun to pick up."

It is good news that the government takeover of Fannie Mae and Freddie Mac has brought lower rates. Borrowers, however, shouldn’t expect the ever-tightening lending standards to ease. With defaults and delinquencies multiplying and home prices falling, Fannie and Freddie will likely keep a close eye on underwriting practices. Lenders are demanding credit scores above 700 these days, up from 620 in the past, and down payments of 20%, up from zero in some cases, experts said. The mortgage titans have also increased their fees in hopes of shoring up their finances. Just last month, Fannie Mae announced higher surcharges for loans to weaker borrowers. For instance, applicants with credit scores between 640 and 659 who are putting down 15% to 20% will pay an additional 2.25% charge. The same borrower would pay 1.7 percentage points more because of higher fees and rates for the same loan today as he or she would have paid 18 months ago, LaMalfa said. If the market continues to worsen, standards could further tighten and fees could rise more, he said."We may have more stringent standards over the next few weeks because of the continued deterioration," he said. "We don’t know where the bottom is yet. It’s a falling knife." Source: CNN/Money Editors Note: If your credit is keeping you from purchasing a home or refinancing, contact us now as we can help you put your financial house in order.

Rent-to-own options are becoming popular again after falling out of favor during the last couple of decades when mortgages were easy to get. The advantages of rent-to-own to buyers include a way around poor credit, an opportunity to rebuild credit worthiness and a way to try out homeownership without making a costly commitment. For sellers, it offers cash flow from properties that might otherwise just be sitting there. In some parts of the country, like Florida, rent-to-own arrangements are fairly commonplace, but in other parts of the country developers are only beginning to experiment with this form of purchase. In the Boston area, Economic Development Financing Corp. (EDFC) and Trinity Financial are two affordable-home developers that have introduced experimental rent-to-own programs. Eric Gedstad, spokesman for MassHousing, a state agency that finances housing construction, says his agency is supportive. "As the lender, we are gratified that the developer has cash coming in. It makes sense for potential homeowners. The more time that goes by the better the opportunity for someone to repair his credit." Source: Boston Globe

While the federal government’s takeover of Fannie Mae and Freddie Mac is expected to help the housing market, buyers and sellers of apartment buildings are worried that proposed changes in government-sponsored entities could hurt them. Because of the availability of financing from Fannie and Freddie, buildings with apartments for rent have outperformed other property sectors by 20 percent from March to May of this year, according to real estate research firm Real Capital Analytics. Mortgages bought by Fannie and Freddie have been cheaper than other loans because of the implied backing of the U.S. government, and multi-family loan delinquency rates remain much lower than those for single-family mortgages. The multi-family industry is nervous that Fannie and Freddie will abandon their segment, but RBC Capital Markets analyst Mike Salinsky says it doesn’t make sense for the GSEs to exit the multi-family lending business. "If you truly want to run these in two or three years as for-profit entities, why abandon one of your most profitable businesses?" he asks. Source: Reuters News

Article courtesy of Chad Scott Mortgage Money Source.

The legislation devotes $300 billion to helping troubled homeowners avoid foreclosure. See if you qualify.

By Les Christie, CNNMoney.com staff writer

Last Updated: July 28, 2008: 3:59 AM EDT

NEW YORK (CNNMoney.com) -- The Senate on Saturday passed a $300 billion housing rescue bill aimed at helping troubled homeowners avoid foreclosure and supporting mortgage giants Fannie Mae and Freddie Mac.

President Bush is likely to sign the bill into law within days. After the law kicks in on Oct. 1, thousands of at-risk borrowers will be able to refinance their unaffordable old mortgages into new low-cost fixed-rate loans insured by the Federal Housing Administration (FHA).

The Congressional Budget Office estimates that 400,000 borrowers with $68 billion in loans may benefit from the program - but the bill allows for as many as 1 million or 2 million borrowers to participate in the program.

Here's what homeowners need to know.

Who's eligible?

Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 31% of their gross monthly income on mortgage debt to be eligible for the program.

They can be up to date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage - and attest that they are not deliberately defaulting just to obtain lower payments.

Before homeowners can get FHA-backed mortgages, they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home.

To get a new home equity loan, borrowers will need approval from the FHA, and total debt cannot exceed 95% of the home's appraised value at the time.

How can I apply?

Borrowers can contact their current mortgage servicer or go directly to an FHA-approved lender for help. These lenders can be found on the Web site of the Department of Housing and Urban Development.

How does the refinancing process work?

This is a voluntary program, so lenders holding the original mortgage have to agree to rework a given loan before things can get started. The bill requires lenders to make major concessions, writing down the value of the loan to 90% of the home's current value. In areas where prices have plummeted by as much as 20%, that will mean a substantial loss for the lender.

But lenders won't sign off on a workout unless they think that they'll lose less money on that than they would by allowing a home to go through the costly foreclosure process.

Each loan will have to be underwritten by an FHA lender on a case-by-case basis. That means the banks will do a new appraisal to determine the home's current value, as well as examine and verify income statements, bank accounts, job histories and credit scores.

Based on that new appraised home value, the FHA lender must determine how much the original lender has to reduce the original mortgage, so that it will reflect 90% of the home's market value.

If the original lender agrees to the writedown, the new lender buys the old loan and takes over the reworked mortgage.

As part of the deal, the old lender writes off any fees and penalties on the original mortgage, including prepayment penalties, and accepts the proceeds from the new loan on a paid-in-full basis. Additionally, it pays the FHA an up-front premium equal to 3% of the mortgage principal.

What does it cost?

There should be little up-front costs for borrowers to bear. Loan origination fees will vary by lender, but these can usually be paid by the borrower over the life of the loan in the form of a slightly higher interest rate.

However, the refinanced loans do come with many strings. For one thing, borrowers are responsible for paying an insurance premium to the FHA guaranteeing the loan, which will be 1.5% of the principal annually.

Borrowers also agree to share any profits from future home-price appreciation with the FHA. To do that, they'll pay a "3% exit fee" of the mortgage principal to the FHA when they resell or refinance.

Plus, they'll agree to pay the FHA 100% of any profits they realize from higher home prices if they sell or refinance within a year. So if the original loan principal is $200,000 and the home sells for $250,000, the borrower will owe the FHA $50,000, minus costs.

After a year, borrowers will share 90% of the profits with the FHA. The percentage keeps dropping in 10% increments to 50% after the fifth year, where it stays.

What will I save?

Savings depend on what borrowers are paying for their present loan and where they live, but for most people it will be substantial, even after factoring in the FHA fees.

In areas that have sustained huge price drops, such as Sacramento, Calif., where prices have fallen by about 30% over the past year, some loans might be reduced by more than 40%.

Additionally, the FHA loans carry reasonable interest rates, which are fixed for the life of the loan, as opposed to a subprime adjustable-rate mortgage that can jump higher every six months.

FOR ADDITIONAL TAX CREDIT INFO...

CLICK ON THE "MY HOME BLOG" LINK OF www.janellewiltonhomes.com