Posts Tagged ‘home buyers tax credit’

Not all Bones are Worth Barking at

July 13, 2010

The Home Buyer’s Tax Credit program has not only received much attention, but also much success among buyers who were able to take advantage of the incentive to receive up to $8,000 in tax credits.  The program was so successful that it was granted two extensions.  The first extension happened this past winter allowing more time and more buyers to get in on the action.  And thousands did!  The second extension was signed into action just 11 days ago by President Obama.  This second extension moves the deadline to close on these home loans from June 30 to September 30, 2010. 

While this may sound good on paper, did it even help anyone?  Were home buyers just thrown the proverbial dog bone?  The second extension affects home loans for purchase agreements that were finalized by April 30 of this year.  That means these contracts are now over 60 days old with most written to close within that time frame.  If a buyer takes another 90 days to close on their home loan, it will have taken 5 months to close their loan!  Are sellers even willing to wait that long to close on the sale of their home?  What affect with that long of a wait have on a sellers next purchase?

Perhaps the underlying question is why didn’t the home loan close in the first place?  You can make the argument that with all the home buyers flooding the market, lenders, appraisers, title companies, etc were suddenly backlogged with so much business they could not possibly keep up.  For some this is probably true, but is the extension too late?  Remember that the extension only changes the closing date.  The binding purchase contract still needs to be dated on or before April 30, 2010.  If the contract was written to close by June 30, 2010 and it did not, that contract is now void.  A written addendum to change the closing date changes the purchase agreement and while the buyer and seller may agree, it also means a final binding agreement was not in place by April 30.

The other challenge we have heard is that buyers were not properly qualified before they even made an offer on the home.  Unfortunately, many lenders only pre-qualify a borrower which means you have only verbally discussed your financial situation for purchasing a home.  A stronger case is when a borrower is pre-approved.  This means actual documentation on income, assets and debt load has been reviewed and verified.  Pre-approved borrowers have fewer surprises when their home loan is processed. (Awareness Home Funding always prepares our clients.)  Unfortunately, many home buyers wanting to take advantage of the Home Buyers Tax Credit are failing to close due to challenges that should have been addressed before they even began to shop for a new home.

The Home Buyers Tax Credit program was a good program that really worked, really helped buyers and really moved home sales.  This last extension just helps very few and was put into affect way too late.  But let’s not leave this post on a down note.  There is still a home buyer’s incentive program in place, one that has been there for some time – the Mortgage Credit Certificate (MCC) program.

The MCC program is a Federal tax credit on the mortgage interest you pay on your home loan over a calendar year.  While this does not reduce your monthly mortgage payment, it is a dollar for dollar reduction from the amount of your Federal Income Tax liability.  Not every state offers the MCC since it is state run and funded despite being a federal program.  However, for states that do, it effectively reduces your annual interest rate.  Awareness Home Funding is committed to using the MCC program wherever available in the states we are licensed to conduct business.

The main point is this, while the Home Buyers Tax Credit program has ended, help is available for home buyers.  Call us today (866-982-9273) to see how we can help you.

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Common Homeowner Tax Deductions

March 23, 2010

Owning a home is the American dream and a source of tremendous pride for you and your family.  Another advantage to buying real estate is the ability to shelter a portion of your income from federal taxes.  Following are some of the more common deductions available to home owners.  Along with some basic information on each are links (bold type) to the IRS website where detailed information can be found.    

As always, consult with the IRS or your tax professional for current guidelines and qualifying criteria on tax related matters.  For information about a home loan to meet your needs and goals, contact one of our licensed Loan Officers.

Mortgage Credit Certificate Program  –  The MCC program is a Federal tax credit of up to 20% of the interest you pay on your home loan over a calendar year, and is available in select states.  While this does not reduce your monthly payment, it is a dollar for dollar reduction in the amount of your Federal income tax liability.  In effect, you are lowering your home loan interest rate by a full percent.  The MCC program will remain in effect for as long as your home remains your primary residence and the original home loan remains in place.  Awareness Home Funding is a lender that does help our clients with this program.    

Home Buyer’s Tax Credit  –  Home buyers may be eligible for a tax credit of 10% of the purchase price of their newly acquired home.  First-time buyers may be able to claim up to $8,000; existing home owners may qualify for up to $6,500.  We have provided some information on this program in two separate articles (No Time Like the Present and The Other Side of the Coin).

Mortgage interest  –  Interest, in general, is defined as an amount paid for the use of borrowed money.  In order to deduct interest on your home mortgage loan, you must be legally liable for the debt that is secured by your main or secondary home.  This amount is generally reported to you on Form 1098 by the lender you have made payments to.  This form should also detail any prepaid interest you have paid.   

Points or Discount Points  –  Points refer to specific charges you may pay in order to obtain a lower interest rate for your home mortgage loan.  Fees associated with preparation costs, appraisals, inspections or notaries do not typically qualify as points.   

Mortgage insurance premiums  –  These expenses are paid to allow a buyer to pay a lower down payment than the 20-25% requirement of a Conventional loan and also protect the lender in the unfortunate event of default on the loan.  Qualifying mortgage insurance may be provided by:

  • The Federal Housing Administration in both an upfront and annual fee.
  • The Department of Veterans Affairs as a one time funding fee
  • The Rural Housing Service as a one time guarantee fee

The amount which can be deducted is reported on Form 1098 by the lender you have made payments to.   

Real estate taxes  –  These are taxes charged on real property based on taxable value.  The IRS highlights what specific taxes associated with your property are deductible.  

Home offices  –  If you use a portion of your home for business purposes, you may be able to deduct certain expenses.  Typical items that may be deductible include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, maintenance and/or repairs.   

Moving expenses  –  If you moved due to a change in employer or occupation, you may be able to deduct your moving expenses.  The two qualifiers used to determine whether this deduction applies to your situation are distance and duration.   

Energy improvements  –  Occasionally, government supported programs allow specific home improvements to qualify for a federal tax credit or a partial rebate of the sales price to the homeowner.  These items are usually of an energy efficient nature for products such as appliances, windows or insulation for the home.   

Health related improvements  –  Home improvements made as a result of a health issue are expenses that may be deducted for the tax year they were paid.  The IRS considers these as Capital expenses and explains what may be included and how to claim these items. 

As always, consult with the IRS or your tax professional for all the current guidelines and qualifying criteria in order to take advantage of these tax deductions.  For information about a home loan to meet your needs and goals, contact one of our licensed Loan Officers.