Credit 101

Credit 101:
Good credit is an important part of the equation in getting a home loan.
Here are the factors that go into a credit score:
1. A credit score is a number that reflects the historical information on a credit report. The number indicates a person's likelihood of becoming deliquent on a loan in the future. The higher the score, the better the terms of the loan such as a lower interest rate.

2. Review your credit report before shopping for a mortgage. You can get a free credit report every year at www.annualcreditreport.com.

3. Errors on a credit score can be fixed. We encourage our clients to get credit counseling for better understand their credit report. To find a HUD approved housing counselor, call 1-800-569-4287.

4. Ordering a credit report will NOT negatively affect your credit score. What does have a major impact is payment history and amount of debt. The longer the credit history, the higher your credit rating, so it's not good to close an unused credit card.

5. A good way to lower your credit score is to reduce debt. Lenders look at a total debt load of no more than 36% of income including house payment.
It's a good idea to get installment debt (car loans, student loans, credit cards) down below 20% of total income.

6. The FICO credit score ranges from 300 to 850, and a higher score can yield a lower interest rate. The FICO credit score is calculated based on five categories:

• Payment History 35%
• Amount owed 30%
• Length of credit history 15%
• New credit 10%
• Types of credit used 10%

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.

1. 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.

2. 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.

3. 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.

4. Are there any income limits for claiming the tax credit?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 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.


5. 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.

6. 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.

7. 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.

8. 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.

9. 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).

10. 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.

11. 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.

12. 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.

13. 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.


14. 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.

New Stimulus Package: Taxes and the Housing Market

Taxes

The recovery package has tax breaks for families that send a child to college, purchase a new car, buy a first home or make the one they own more energy efficient.
Millions of workers can expect to see about $13 extra in their weekly paychecks, starting around June, from a new $400 tax credit to be doled out through the rest of the year. Couples would get up to $800. In 2010, the credit would be about $7.70 a week, if it is spread over the entire year.
A $1,000 child tax credit would be extended to more low-income families that don't make enough money to pay income taxes, and poor families with three or more children will get an expanded earned income tax credit.
Middle-income and wealthy taxpayers will be spared from paying the alternative minimum tax, which was designed 40 years ago to make sure wealthy taxpayers paid at least some tax but was never indexed for inflation. Congress fixes it each year, usually in the fall.

Housing:

First-time homebuyers who purchase their homes before Dec. 1 will be eligible for an $8,000 tax credit, and people who buy new cars before the end of the year can write off the sales taxes.
Homeowners who add energy-efficient windows, furnaces and air conditioners can get a tax credit to cover 30% of the costs, up to a total of $1,500.

A Year in Review...2008

Happy New Year from our Family to Yours.

2008 saw fears of a housing recession become a reality as the “sub-prime” collapse and negative media blitz combined to slow down the demand for housing. The incredible rise in home values stalled and retreated to 2001 levels.

Home loan requirements for buyers returned to the “good old days” when qualifying meant good credit, a down payment and a job.

The new market has brought down home prices, but the savvy homeowner used the opportunity to purchase a larger home, and in most cases, came out ahead.
They understood that although the price had fallen on their current home, they had fallen even more on their new “move up” home. They had the foresight to see the “whole picture,” and thus came out ahead with the home of their dreams.

Despite all the negative news, here is some good news:
· Gas prices are 1/2 of what we have recently seen.
· Interest rates are around 5%.
· Chances of a real estate deal falling apart right before closing, due to

financing, are much smaller, because buyers are much more qualified.
· Bank of America is spending more than $8 billion to reduce

interest rates so that borrowers can keep their home.
· Real estate lobbyists, from our National Association of Realtors,

are pushing for more programs to increase the amount of buyers

and thus demand for existing homes.
· Qualified first time homebuyers can get a $7500 tax free credit,

payable at less than $500 per year.
· One of the governments top priority is to stabilize the housing

market. You will see more programs with the new administration.
· Investors are buying rental properties to get positive cash flow.

Most of us are old enough to know that there are peaks and valleys in life and that includes economic times. A tough market has always evolved into a prosperous one. We will look back at this period as arguably the best time to BUY real estate in decades.

The experts say, “don’t try to time the market.” Rather, buy in the current “safe zone.” You will profit from having had the courage to buy now (in the safe zone) rather than chance later when values will inevitably rise again.

Thousands of agents are currently leaving the business. We were fortunate enough to work hard in hard times to be the top sales team for our Coldwell Banker office in 2008.
Remember that homes are still selling because people need to buy homes.

We thank you for reading our neighborhood newsletters, your business, for your referrals and helpful ideas.
As we enter our 25th year of serving the community, we wish you and your Family a Happy & healthy 2009!

The Cost of Waiting to Buy!

The financial news is full of stories warning about the inability to predict the bottom of the stock market. A 40% decrease in stock prices in one year have uncovered some great values available for investors and buying them at their absolute lowest price will not make much difference for the people who hold them for a while.

Home prices are very much the same. There has been a correction in the market and prices are down in most parts of the country. Combine these with the attractive rates currently available and it is a bargain that everyone will look back on saying that "this was the best time to buy."

Let's make an assumption that the prices may still decline 5% more before they start appreciating again. If while a buyer was waiting for the price on a $250,000 to go down 5% to $237,500, and the interest rate goes up one percent from 5.25% to 6.25%, which is entirely possible, the buyer's monthly payments will increase almost $79 per month.

(See chart at the top of the page)

For most buyers, the monthly payment to control the cost of the home is much more important than the price paid or even the equity in the home.

Give us a call and we can research some of the wonderful Homes out there, at amazing prices, that you may not see again.

Your Dream Home is now Affordable!

Good News if you Own a Condo

FHA previously regarded condos as multi-family units, requiring the entire building be FHA approved.
But with FHA Modernization, condos now will be treated like a single family home, making buying easier.

Summary of Real Estate Changes You Should Know About

1. The Tax Credit
Tax credits are special provisions that reduce income tax liability on a dollar for dollar basis. Credits are claimed on an individual's income tax return. In this case, Congress has created a tax credit for first time homebuyers. The maximum credit amount is $7,500. Si if you normally, do not get a refund, you will get an approx $7500 refund! THIS IS AN INCENTIVE AND PART OF THE HOUSING BILL SIGNED BY THE PRESIDENT TO HELP WITH THE HOUSING SLUMP.

Who can use the new tax credit?
Only first time homebuyers are eligible to use the credit.A first time homebuyer is definedas an individual who has not had an ownership interest in a principal residence in the previous three years.

Is there an income restriction?
Yes. Single or head of household are eligible if their income is no more than $75,000. Individuals who file a joint return may have income of no more than $150,000.

Is the amount of the credit ties to the price of the home?
Yes. The credit is for 10% of the cost of the home, up to a maximum credit of $7,500. If a home cost $65,000, the allowable credit would be $6500. If a home cost $120,000, the allowable credit would be $7500. The amount of the credit is the same for all taxpayers, married or single.

2. FHA and Condos:
Among FHA reforms, FHA previously regarded condos as multi-family units, requiring the entire bldg to be FHA approved, but now condos will be treated like a single family home, making buyibg easier.

3. Fannie Mae/Freddie Mac Bailouts:
The National association of Realtors Chief economist, Lawrence Yun, said the move would bring stability & help restore market confidence. It should lower interest rates and encourage lenders to expand mortgage loan operations, both of which should help the housing market.

4. Foreclosure Relief:
An estimated 400,000 struggling homeowners could avoid foreclosure with a new FHA program, Hope for Homeowners. The program began October 1, 2008 and ends September 30th, 2011. With $300 billion in federal funding, FHA will help homeowners with problematic sub prime loans to refinace to an FHA insured, 30 year fixed rate mortgage. One caveat is that lenders must agree to write down the loan to 90% of the appraised value. Eligible mortgages are those originated on or before January 2008, and borrowers must have a debt to income ratio of higher than 31%. For their part, homeowners must agree to share future equity of the home with FHA when the home is sold or refinanced. After 5 years, the equity split is 50%.