Thursday, June 18, 2009

Home Buyer Tax Credit

The new-and-improved version of the First-Time Homebuyer Credit offers rookie home buyers (or those who simply haven't owned a home in the past three years) a chance to get a federal income tax credit of up to $8,000. Thanks to this year’s Stimulus Act, you don't have to repay the credit like you did with last year’s version.

Even better, the IRS says unmarried individuals can team up on a home purchase and then share the credit. If you're thinking of going this route, here's what you need to know to get the best tax-saving results:

How Much You'll Get
The updated First-Time Homebuyer Credit can be applied to purchases of homes that occur between Jan. 1, 2009, and Nov. 30, 2009. The maximum credit equals the lesser of 10% of the purchase price of a principal residence or $8,000. Or, in the case of married individuals who file separately, $4,000. (These amounts are up from the $7,500 and $3,750 limits for purchases that occurred between April 9 and Dec. 31 of last year.)

There are some catches, however. The credit is phased out (reduced or completely eliminated) if your modified adjusted gross income (MAGI) is too high. (For this purpose, MAGI means the adjusted gross income figure reported on the last line on page 1 of your Form 1040 increased by certain income from outside the U.S. that is exempt from taxation.)

For married joint filers, the credit is phased out when the MAGI is between $150,000 and $170,000. For unmarried individuals and married individuals who file separately, the credit is phased out between MAGI of $75,000 and $95,000.

You can use the credit to offset your entire federal income tax bill, including any alternative minimum tax (AMT). Since the credit is refundable, you can collect any amount left over after your tax bill has been reduced to zero in cold, hard cash.

The credit is only available to buyers who have not owned a principal residence in the U.S. during the three-year period that ends on the purchase date for the home. That home must serve as the new principal residence.

If you’re married, both you and your spouse must pass the three-year test (whether or not you file jointly). If you’re unmarried, and you team up with another person to buy a home that serves as the new principal residence for you both and you both pass the three-year test, then you can share the credit. If only one of you passes the three-year test, only that person can claim the credit.

Unmarried Buyers Can Share the Credit
Say two (or more) unmarried individuals buy a home together that serves as their new principal residence. Assuming each person passes the three-year test and they jointly own the property as tenants in common or as joint tenants, they can pretty much share the credit any way they choose, according to IRS Notice 2009-12. However, the total credit is still limited to the lesser of 10% of the purchase price or $8,000. And the credit allocated to each person is still subject to the phase-out rule, based on MAGI. Although the IRS doesn’t actually say so, it appears you can’t claim a credit that exceeds your share of the purchase price (including your share of any mortgage debt). Here’s an example to illustrate the possibilities.

Example: Say you and your significant other jointly buy a home for $150,000 in June of this year and you both pass the three-year test. You pay 60% of the cost, and your partner pays 40%. The available credit for this purchase is $8,000 (lesser of 10% of the purchase price or the $8,000 credit ceiling). You and the other person could agree to share the credit 60/40 to reflect your shares of the purchase price. But if the other person's MAGI is too high to claim the credit and yours is not, then it makes good tax-saving sense to have the entire $8,000 allocated to you. On the flip side, if your MAGI is too high, the entire $8,000 could be allocated to the other person. Or you could split the credit 50/50, or 75/25, or 25/75, or whatever allocation suits the two of you best. Anything you decide is OK with IRS.

Word of Caution: Credit Must Be Repaid in Some Circumstances
Under last year’s version of the First-Time Home Buyer Credit, those who bought homes between April 9, 2008, and Dec. 31, 2008, were generally required to repay the credit over 15 years. The Stimulus Act eliminated the repayment rule -- in most cases. However, the repayment rule can still hit you if you sell the home you buy in 2009 within three years of the purchase date or stop using the home as your principal residence during that time. If either of those events occurs, you generally must repay your entire credit when you file your Form 1040 for the year during which the triggering event occurs (no 15-year repayment deal for you).

Wednesday, June 17, 2009

Deciphering Mortgage Types

Deciphering Mortgage Loan Types

Home loans got your head spinning? You're not alone. We all need a clear explanation of mortgage types before we take the plunge into the home buying market. Get help understanding types of mortgages here before you go shopping for your own home loan. We've compiled a solid list of resources to consider when understanding mortgage types.

There are four basic types of mortgage loans: fixed rate loans, adjustable rate loans, convertible mortgage loans and balloon mortgage loans. Learn more here. Walletpop: Types of Mortgage Loans

You may have heard of FHA or VA Loans. The Federal Housing Administration (FHA) is part of the U.S. Dept. of Housing and Urban Development (HUD). An FHA loan usually requires a lower down payment and must not exceed the statutory limit. Similarly, VA loans, backed by the Department of Veteran Affairs can offer lower down payments and terms if you qualify for one.

Conventional loans may fall under the category of conforming or non-conforming. Conforming loans are backed by Fannie Mae and Freddie Mac, who set terms as to how much the loan may be for, what kind of credit requirements are involved and amount of down payment. Jumbo loans, above the maximum amount established by Fannie and Freddie can have higher interest rates.

Need more help with explanation of mortgage types? We have a simple explanation and list of some of the more popular loans. See which loan is right for you.

What is Negative Amortization?

Negative amortization happens when a loan payment schedule has increasing amounts each year because the scheduled monthly payments do not fully cover the amount of interest due. The unpaid interest builds up and is then added to the principal of the loan, resulting in you owing more on the loan balance each year instead of chipping away at the principal balance.

Graduated payment loans allow you to buy a home with a larger loan and a smaller payment up front. However, the payments go up at pre-determined times throughout the loan, and keep accelerating into larger payments toward the end of the loan life to catch up for the earlier lower payments. During this time, especially the early years, they are building up negative amortization, thus you are owing more each year on your loan balance than you started with.

Option ARM loans have become popular during the boom, as they allow you to buy a home with a large loan, yet pick which payment you want to send in monthly. In good times, you may choose the lowest payment, which would accrue negative amortization. In good times, you may want to bump it up to an interest only or even a fully amortized payment. These loans may be beneficial to someone starting out in a career that needs a lower loan payment option, but as you progress in life you can pay the higher amount, thus combating or making up for the early negative amortization.

Fixed Rate or Adjustable?

With a fixed rate loan your payment generally stays the same through the life of the loan. You can get a lower interest rate for shorter term loans, for example if you chose a 15 yr. vs. a 30 yr. You'll get a lower payment with a longer term however you'll pay a lot more interest, and therefore more on the total loan throughout the loan life.

Payments on adjustable rate mortgages (ARMs) change through the life of the loan. Adjustments are made to the interest rate of the loan based upon the defined index the loan uses, such as a Treasury Bill (T-Bill) or Cost of Savings Index (COSI) or many more. Arm Indexes Explained

If you really want some heavy reading on ARM loans, check out the Federal Reserve Board's Consumer Handbook on Adjustable Rate Loans.

Fixed or Adjustable? See which loan is right for you from Bankrate.

Glossary of adjustable rate mortgage terms:
Federal Reserve ARM Glossary

Thursday, June 11, 2009

2 in a Row

2 In a Row?
That's right, 2 months in a row Eddie Kefalas has earned the CENTURY 21 JRS Realty Agent of the Month Award. With the stacked roster of top agents CENTURY 21 JRS Realty employs this is a tremendous accomplishment. CENTURY 21 JRS Realty has some of the hardest working, well trained agents in the Union & Middlesex County area. For Eddie to be the Agent of the Month for April and May of 2009 is a great accomplishment. CENTURY 21 JRS Realty is very happy for Eddie and would like to wish him even more success moving forward. This market will not stop CENTURY 21 JRS Realty from reaching their goals, and it will not stop Eddie either.