The American Recovery and Reinvestment Act of 2009 has had many New Jersey First Time Home Buyers asking questions about how to qualify.

Here are the Top 10 questions and answers all in one place:

1. Who is eligible to claim the $8,000 tax credit?

First-time home buyers purchasing a new or resold home are eligible. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and on or before April 30, 2010.  However, the law also allows home sales occurring by June 30, 2010 to qualify, provided they are due to a binding sales contract in effect on or before April 30, 2010.  Persons who are claimed as dependents by other taxpayers or who are under age 18 are not qualified for the tax credit program.

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 home ownership history of both the home buyer and his/her spouse.

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. What are the new income limits for claiming the tax credit and are the amounts retroactive?

For sales occurring after November 6, 2009, the income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $125,000 for single taxpayers and $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.  The new income limits are only applicable to purchases occurring after November 6, 2009.

5. What is “modified adjusted gross income”?

Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine “adjusted gross income” or AGI, which is total income for a year minus certain deductions, but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007).   See IRS Form 5405 for more details.

6. 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.

7. How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?

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 67 of the 1040 income tax form for 2009 returns.  No other applications 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.  Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase.

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, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.  It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse’s family members. IRS Form 5405 provides further guidance.

9. 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 on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April, 30, 2010).  In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

10. I am not a U.S. citizen. Can I claim the tax credit?

Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

New Jersey FHA Mortgage First Time Home Buyers Need To Act Fast!

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Please contact us at 201-943-6800 to schedule your FREE No-Obligation Consultation where we will meet to tailor a program to fit your needs and comfort level for monthly payments and investments.

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I hope you have enjoyed this blog.

Until next time,

Tony
201-943-6800

P.S. Also, make sure you register for our Insider Mortgage Secrets, browse our HomeBuying Resources section and fill-out a free no-obligation secure online applicationor call our Edgewater, New Jersey (NJ) office in Bergen County (New Jersey Gold Coast) at 201-943-6800 with any questions you have.

P.P.S. CLICK HERE to check out our FREE Credit Repair Program.

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“Three Is a Magic Number” was one of the original songs from the Schoolhouse Rock! Series that aired on Saturday mornings during the ‘70’s.

The first verse of the song says:

Three is a magic number,
Yes it is, it’s a magic number.
Somewhere in the ancient, mystic trinity
You get three as a magic number.

For the numerous Arizona households that experienced a foreclosure in recent years and want to buy a house again, three is a magic number.

According to Default Research Inc,  recent foreclosure statistics for Maricopa County (the location of Phoenix, Scottsdale, Tempe, Mesa, Chandler, Gilbert, and more) are as follows:

2006: 8,972 foreclosures
2007: 22,426 foreclosures
2008: 60,860 foreclosures

It can be logically assumed that the majority of these households did not move far from their foreclosed homes.  Many of them are working on maintaining or salvaging their credit history in hopes of again becoming eligible for a mortgage loan despite their foreclosure.

Why is Three A Magic Number for FHA Mortgages?

FHA states that the minimum waiting period is three years for a borrower whose house has been foreclosed or who has given a deed-in-lieu of foreclosure. This is a much shorter waiting period than that which is required by Fannie Mae (5 to 7 years).

During the three years they are waiting, it is imperative that the households re-establish credit. My recommendation – although every credit scenario is different – is that they maintain at least three open credit accounts without late payments. If any of the accounts are revolving (e.g. credit cards), the account balance should be maintained below 33% of the limit in order to maximize the account’s positive impact on the three credit scores.

FHA loans also have a low and flexible down payment requirement which helps overcome another significant barrier to entry to re-homeownership. The current minimum down payment required under FHA guidelines is 3.5% (ok, not exactly three, but close enough). Compare this to the Fannie Mae minimum requirement of 10% for a buyer with a previous foreclosure.

Finally, three is a magic number because IRS guidelines define a first-time homebuyer as any individual (and spouse if married) who has had no present ownership interest in a qualifying principal residence during the previous three-year period. As a result, Arizona households that can use an FHA loan to buy another home three years after foreclosure can typically take advantage of first-time homebuyer programs and incentives such as the existing $8000 first-time homebuyer tax credit that was recently extended to April 30, 2010.

The past and the present and the future …give you three as a magic number.

For the many households that have experienced foreclosure in recent years, FHA’s three-year post-foreclosure waiting period offer a faster route to re-homeownership.

Please contact me with questions.

Steve Lines
Authorized FHA Loan Consultant and Co-Branch Manager
Serving Mesa, AZ and all of the Phoenix Metropolitan Area
480-344-3662 (direct)
480-329-3346 (mobile)
slines@bestfhalender.com (email)
www.bestFHAlender.com (my blog)
www.twitter.com/stevelines
www.linkedin.com/in/stevenlines

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Copyright © 2008
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