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May 29, 2009

Borrowers still need 3.5% of own funds

The U.S. Department of Housing and Urban Development has clarified how tax credits under recently passed legislation can be monetized in home purchase transactions.

HUD Secretary Shaun Donovan today told a group of directors for the National Association of Home Builders that the $8,000 first-time homebuyer tax credit created under H.R. 1, the American Recovery and Reinvestment Act of 2009, can be applied toward the purchase of properties securing loans insured by the Federal Housing Administration, a news release said.

Donovan originally announced the monetization of the tax credit earlier this month.

The recovery bill became law in February.

The tax credit is not available until the borrower files a U.S. income tax return. But with today's action, HUD will allow FHA borrowers to obtain secondary financing up front from state Housing Finance Agencies and certain non-profits.

"Today's action will help stabilize the nation's housing market by stimulating home sales across the country," the statement said.

However, the funds cannot be applied toward the 3.5 percent down payment required from the borrower. But the funds can be applied toward "their down payment in excess of 3.5 percent of appraised value or their closing costs." Funds used for discount points can help reduce interest rates.

In addition to the borrower's own cash investment, the 3.5 percent can be contributed by parents, employers and other governmental entities.

Donovan noted that today's actions differ from seller-funded downpayments -- which were "a vehicle for abuse."

A boon for new homebuyers, scheduled to last through next March, will be out of money long before that.

(CNNMoney.com) -- Time is running out for California residents wanting to take advantage of a $10,000 tax credit. The state set aside $100 million to help home buyers purchasing newly built homes, hoping to jump start the moribund residential-construction market. But only about 20% of the pot is left.

"We're less than four months into it, and all the tax credits authorized are gone, or practically gone," said Tim Coyle, a senior VP with the California Building Industry Association (CBIA).

The program launched in March and by June 3 nearly $24 million in tax credit certificates had already been issued, according to the state's Franchise Tax Board.

That leaves nearly $76 million in credit available - but there are already numerous claims on that money. In fact, if all the submitted applications are approved, only $17.5 million will be left in the fund. And it has a run rate of about $10 million per week.

"The program is working better than intended," said Coyle. "It's really pushing people off the fence."

How it works

The credit is available on a first-come first-served basis and was supposed to last through March 2010. Almost any newly built home qualifies, as long as it's an owner-occupied, principal residence on which property tax is paid. It could be a single-family home, a condo, a coop, a manufactured home or mobile home -- even a houseboat. Only owner-built housing does not qualify. There is no cap on the home price or buyer's income.

The credit reduces taxes dollar-for-dollar up to $3,333 a year for three years, or 5% of the purchase price of a home, whatever is less. Unlike the federalfirst-time homebuyers tax credit, which is $8,000 or 10% of the home price, whichever is less, the California credit is not refundable. That means the credit will only wipe out taxes up to the full amount paid or owed but no more.

For example, if the buyer's tax bill came to $2,000 for the year, a buyer claiming the full $3,333 would owe nothing but couldn't claim the extra $1,333 back from the state.

First-time, new-home buyers in California can claim both the federal credit and the state if they qualify. That could reduce taxes by $11,333 for the first year of ownership.

Bottom line: Take advantage while it's still available!! 

Zorell Investments strongly supports the HVCC petition. 

Who is effected?  Everyone. 

Please watch this video for some brief education and the SIGN IT!!

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