Are you confused about the $7500 and $8,000 Home Buyer Tax Credits?

You are not alone.  Many are confused. On February 25, 2009, the IRS issued a press release distinguishing between the two homebuyer tax credit amounts ($7,500 and $8,000); one is allowed for purchases between April 9, 2008 through December 31, 2008, and the other is allowed for home purchases made from January 1, 2009 through November 30, 2009.

Qualifying first-time homebuyers who purchase a home between 1/1/09 and 11/30/09 may claim an $8,000 tax credit that they do not have to pay back as long as the home remains their primary residence for 36 months after purchase.

Taxpayers who purchased a home between 4/9/08 and 12/31/08 are not eligible for the $8,000 non-repayable tax credit; these individuals are only eligible for a $7,500 interest-free loan that must be repaid.

Who qualifies for the $8000 tax credit?

• The tax credit is for first-time homebuyers only. For the tax credit program, the IRS defines a first-time homebuyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
• Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit of 10 percent of the home’s purchase price up to a maximum of $8,000.

Who doesn’t qualify?

• The person is a non-resident alien.
• The purchased home is located outside of the U.S.
• The home was inherited or a gift from someone else.
• The home was purchased from a relative.  This may include a spouse, parent, grandparent, children, and grandchildren.  Related parties also include corporations or partnerships in which a person owns more than 50% of the stock or receives over 50% of the profits or interest.

Still confused? 

Check out the following this website. Many frequently asked questions have been answered here.

http://www.federalhousingtaxcredit.com/2009/faq.php

REFINANCING

You may consider refinancing if ...

You have a fixed or adjustable mortgage with an interest rate over 6 percent. With rates on 30-year fixed loans below 6 percent, many homeowners want to lower monthly payments or move from an adjustable to a fixed mortgage. You’ll need to run numbers to see if closing costs justify the new rate’s monthly payment savings, but many lenders say that if you can save 50 basis points (0.5 percent), or even 25 basis points with no closing costs, it might be worthwhile.

Your credit score is over 650. To get a good rate on a non-government loan, your score needs to be at least 650 — maybe 680, depending on the lender and market. It’s worth pulling scores before approaching lenders, as scores help determine your rates.

You live in an expensive urban market and have a mortgage over $417,000. Government-set maximum limits on conforming mortgages, previously capped at $417,000 in most markets, will rise starting in March to $729,750 in California and other pricier markets. If your loan exceeds $417,000, you could refinance from a “non-conforming” to a more desirable “confirming” loan.

You’re eligible to refinance to an FHA loan.
Loans offered by Federal Housing Administration, typically targeted at first-time or smaller-budgeted buyers, are usually offered to people buying a property priced below a local market’s median price.  

You have at least 10 percent equity in your home and aren’t FHA-eligible. To get good rates, you’ll need to have equity in the home. In most markets, 10 percent equity is a minimum. In more volatile markets  lenders want to see as much as 30 percent equity. If you have minimal equity but have poured work into your home, an appraisal may reveal that remodeling has increased your home value sufficiently to create the equity you need. 

It may be unwise or difficult to refinance if ...

Your interest rate on a fixed loan is below 6 percent or you plan to move soon. Many lenders say closing costs related to a refinance aren’t worth it if you’re shaving less than 50 basis points (0.5 percent) off your current interest rate, or 25 basis points with no closing fees.

Planning to move? That makes refinancing a tough call. Even if you lower monthly payments, those savings may not offset by the closing costs required for a new loan.

Your credit score is below 650 or your credit report has blemishes. Unless you’re eligible for an FHA loan, a low credit score means you may not get a favorable rate without substantial equity or other offsets. Refinancing options exist for borrowers with lower credit scores, but they come with price penalties that may not be worth it, such as a requirement to buy mortgage insurance, says Quicken’s Walters.

You have less than 10 percent equity in your home. Whether you used a low down payment to purchase or live in a market where home prices have fallen (taking some of your home equity), chances are you’ll have a tough time finding a refinancing situation that makes sense—or where you don’t have to bring extra cash to closing to create the equity required for the deal. FHA loans are an option, but eligibility depends on your home’s value relative to median market values.

You live in a “declining market.” Lenders have designated many areas of the country “declining markets” for risk purposes, meaning if you choose to buy in such an area your refinanced mortgage will require a down payment that’s higher than the lender’s normal minimum requirement—for instance, 15 percent vs. the usual 10 percent. When refinancing in a declining market, your may need to bring prohibitively large sums of cash to closing to “buy up” a minimum level of equity in your home and get your new loan approved.

You’re self-employed or want to pursue a “stated income” or “no-doc” loan. So-called “stated income” or “no-doc” loans grew popular with self-employed folks during the housing boom. It’s possible to refinance out of a stated-income loan to a regular product now, but forget securing a new stated-income loan. Self-employed workers now must provide extensive documentation.

You’re facing foreclosure. If you’re over 30 days late on mortgage payments, you’ve kick-started the foreclosure process and are technically in pre-foreclosure; if you’re more than 90 days late, you’re definitely in foreclosure. Late payments rob you of the power to refinance, but you may be able to get a “workout” with your lender in which you amend loan terms temporarily or permanently so you can get (and stay) current on your mortgage.