Cindy's Blog

As news of the economy seem to just be getting worse and worse daily, there seem to be precious few who are really unaffected, or somehow impacted by all of the bad news. Having said that, there is actually some good news to be had. No, seriously. Whether you own a home currently, or have thoughts of perhaps buying one soon, there is some good news for you in the stimulus package, the Homeowner Affordability and Stability Plan, and the mortgage markets.

First of all, and perhaps easiest to understand, are the incredibly low mortgage rates. 30 year fixed rate mortgages are still hovering at or just above 5%, with some products even lower than that. These really are tremendously low rates, and very hard to pass up! With the shift in the markets now, including the mortgage rates, the scale has once again tipped back to the point of it being a better financial decision for most people (though by not means all- every situations, of course, is different) to buy rather than rent. This is a situation that is a bit different than what we have been seeing in recent months.

According to the plan, first-time homebuyers who purchase homes from January to November 2009 may be eligible for an $8,000 credit, or 10% of the value of the home tax credit (whichever is lower).

It's important to remember that the $8,000 tax credit is just that... a tax credit. It really is a dollar-for-dollar tax reduction, rather than a reduction in a tax liability.(That might only save you $1,000 to $1,500 when all was said and done)  So, if you were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, you would owe nothing. Sweet!

Even better, the incentive is refundable, which means you can receive a check for the credit even if you have little income tax liability. For example, if you're liable for $4,000 in income tax, you can offset that $4,000 with half of the tax incentive... and still receive a check for the remaining $4,000!

But Who Qualifies?

The $8,000 incentive starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000 and is phased out completely at incomes of $170,000 for couples and $95,000 for single filers. To break down what this all means, the National Association of Homebuilders (NAHB) offers the following examples:

Example 1: Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase-out threshold is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time homebuyer incentive to this couple, multiply $8,000 by 0.5. The result is $4,000.

Example 2: Assume that an individual homebuyer has a modified adjusted gross income of $88,000. The buyer's income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible to reduce the tax liability by $2,800.

Remember, these are general examples. Borrowers should consult a tax advisor to provide guidance relevant to their specific circumstances.

What Type of Home Qualifies?

The tax credit is applicable to any home that will be used as your primary residence. Based on that, qualifying "homes" include single-family detached homes, attached homes such as townhouses and condominiums, and even manufactured homes and houseboats (if used for primary residence.)  Buyers will have to repay the credit if they sell their homes within three years, but overall, this really is a great deal.

Well, I think that's enough heavy info to process for the day. Don't forget to check out my market reports page, and see what things are doing in "your neck of the woods." As always, if you want some more personalized info, or a no obligation consultation, call or email me!!