Tax credit extended and expanded

Just last week I blogged about how the first time buyer tax credit was set to expire on November 30, 2009.  Well, a lot has happened in the past week.  Earlier in the week the House of Representatives passed an extension.  And Barack Obama signed it into law early on Friday. 

The extension now runs through June.  In order to take advantage of the tax credit up to $8,000, you will need to sign a contract by April 30, 2010 and close by June 30, 2010.  Just be careful.  If you are signing a contract to purchase a home that is going through a short sale, please beware.  A lot of banks can take longer than 60 days to approve a short sale or that closing.  So you’ll need to get everything signed prior to April 30.  April 30 is the last day you can have a contract signed and June 30 is the last possible day to close to take advantage.

8000-tax-creditAgain, how the credit works is this.  If you purchase a home for $80,000 or more, you are eligible for an $8,000 tax credit on your 2009 taxes.  Remember, you file 2009 taxes in 2010.  If it’s a home for less than $80,000, you can get a credit for up to 10% of the purchase price.  If the home is $59,000, you will receive $5,900.

Obama also extended the income limits of who is eligible.  Single buyers can now earn up to $125,000 per year in income and married couples up to $225,000 to be able to receive it.  If your income level is above those amounts, you are not eligible to receive the credit.

Obama also extended the credit to move-up buyers, not just first time buyers.  In order to qualify for this $6,500 credit, you must have owned and occupied a principal residence for at least 5 of the last 8 years.  So many more people will qualify under the new rules.  Congress and the President are hoping the economy will get stimulated a bit by this expansion.

Originally, Congress was hoping that this tax credit would start a domino-like reaction.  First time buyers would purchase homes from sellers who would then choose to purchase homes and so on.  Unfortunately, a lot of buyers turned to vacant/foreclosed/short sales, so these homes didn’t have sellers who needed to move up.  But they’re hoping that offering a tax credit to move-up buyers will start this domino effect again.

More information on the expansion can be found in this article. I also have lots of great info on my Web site.

News you can use for first time buyers in this market

As I’ve made aware several times, the time to take advantage of the first-time buyer tax credit is before December 1st.  The offer of the $8,000 tax credit is currently set to expire at the end of November, and you would need to close on your residence on that date or before in order to qualify.  If you’re in the market to purchase your first home (or you haven’t owned a home in the past 3 years), these important facts will help you learn everything you need to know.  For more on who is eligible for the tax credit and more specific details, be sure to click here.

1. Understand that the Mortgage Disclosure Improvement Act is now in existence.  This act went into effect July 31st.  It basically states that if there are additional costs that affect your APR, you need to get a new Truth In Lending statement a week prior to closing.  What this means to you is that your closing could be delayed.  If you know of any changes that could affect your mortgage affordability/interest rate, be sure to let your Realtor and mortgage lender know as soon as possible.  Some of these changes could be a change in your take-home pay from your job, an FHA home inspection, etc.  first-time-home-buyer

2. Don’t forget about closing costs.  You may know that you can afford the down payment for your home, but don’t forget about those additional costs such as attorney fees, lender fees, title fees, and transfer tax, if it applies.  Be sure to speak to your lender up front about these costs and know what to expect.  Your lender should be able to come up with an amount you need to bring to closing prior to the closing occurring.  In Illinois, you will need to have this money as a cashier’s check made out to yourself.  And remember to bring your photo ID.

3. Be careful who you choose as your Realtor.  It’s great if you have a friend of a friend of a friend or your cousin’s mother’s boyfriend’s neighbor is a Realtor.  They could end up being a great agent for you.  On the other hand, they may not.  You’ll want to use someone who is knowledgable about the area you’re looking in.  If it’s a someone a family member or friend gave you the name of but they work in a completely different market, chances are you’ll be better off with someone local.  Make sure you ask for references and get referrals for a Realtor from people you trust, or those you know who closed in the past year.   As a first-time buyer, you might also want to work with someone who specializes in working with first-time buyers and is familiar with the tax credit.

4. Make sure as a buyer you know that you do not need to pay for a Realtor’s services (this is true in Illinois.)  If you are interested in having Realtor representation for for sale by owners, a Realtor may ask that you cover some of their commission if the seller refuses to do so.  If you are looking at homes in the MLS, the sellers pay the commissions out of the money they make on the home.  Understand this as you’re negotiating with them. 

5. The first closing can be overwhelming.  As you’re in the room looking at the stack of papers that could total the number of pages in an encyclopedia, take a deep breath.  The mortgage company requiers your signature on several pages just making sure you understand how the process works.  Make sure you have your attorney accompany you to the closing.  They will explain to you each paper that you sign so that you feel comfortable.  Don’t hesitate to ask questions.  It may be overwhelming, but it’s wonderful being handed the first set of keys to your new home! 

View this great article for more tips. If you do have more questions, please be sure to visit me online.