- I am a first-time home buyer and purchased a home before the Home Buyer Tax Credit extension. Should I have closed before November 30, 2009?
- I have rented out my present home for the last 2 years and now I want to buy a condo and move into it. Do I qualify for the Tax Credit?
- I just got married! My wife and I want to buy a home with the tax credit and I have owned a home for the last few years. Are we eligible?
- What if I buy a house with the tax credit then move in 2 years?
- Can I use the tax credit for the down payment?
These were just a few of the questions asked at a recent session on the Home Buyer Tax Credit extension held at The Group Inc. real estate offices on January 13. Like Cash for Clunkers for the auto industry, the extension of the Home Buyer Tax Credit extension is meant to encourage buyers to purchase a home sooner than later.
And it seems to be working. Originally, the tax credit extension ended on November 30, 2009 but the feds decided to extend it to April 30, 2010 which means that as long as you have a signed contract by April 30 and close by June 30, you are eligible for either the first-time home buyer credit of $8,000 or the long-time resident tax credit of $6500.
But there are restrictions and here are just a few:
- You have to have lived in your home at least 5 out of the last 8 years in order to qualify for the long-time resident tax credit and the house you buy must become your personal residence.
- If you buy a home with your new spouse, the two of you must meet the qualifications of a long-time resident by living in the same house if the both of you are looking to qualify as long-time residents.
- You can keep your present home as an investment if you want.
- In a few cases and possibly a higher interest rate, the buyer might be able use the money as part of a down payment.
- Members of the military serving overseas get an extra year.
- The buyer can’t buy the home of a relative.
- Plan on owning the property for at least 3 years.
- There are maximum income levels and minimum sales prices.
- Ask your Realtor how to claim your credit and what forms you will need.
Congress passed the tax credits in an effort to boost the struggling housing industry and fight recession. Indications are that it’s had an impact. The National Association of Realtors reported that November sales of existing homes were up 44 percent from a year earlier. Although new home sales dropped in November, figures from the Commerce Department show that they’re up 8 percent from the low in January 2009.
As a real estate agent, I’ve been spending much of my time fielding calls from clients asking if they are eligible and asking for advice as to their next step. Each situation is different and my answers need to be about each client’s financial state, the local market and the client’s potential price range. We also have to consider the stress and time and effort it takes to buy a house and meet a looming deadline.
Since the long-time resident tax credit can also be used to downsize, it can work for someone living in a home that no longer meets the needs of a smaller household. Sell your family home and buy a patio home or a condo. But I think the majority buyers using the tax credit will be the first-time home buyer who can use the money to make some changes to their new home or they can just tuck it away just like a bonus but without the tax ramifications.
So bottom line: with less than 5% interest rate (for buyers with great credit), some fantastic inventory, motivated sellers (though not all!!!), and free money, we haven’t seen such a good buyers market in awhile. However, with reasonable prices for homes that are in popular locations and well-maintained, we are seeing multiple offers again.
I called clients about two homes that I saw on a Realtor tour before it even hit our local MLS, but both were under contract before the end of the day. So, no matter what you hear in the national media about the state of real estate, everything really is local. Not just the northern Colorado market, but neighborhood by neighborhood, the sales are widely different.
A couple of caveats here. Changes in the lending market are forcing contract deadlines to go from 30 days to close to 45 days to close and with FHA loans it can be up to 60 days to close. If you’ve been ruminating about a possible sale or purchase, call your Realtor, pay attention to your neighborhood, drive around the neighborhood you would like to live in, go to Open Houses, look on the Internet, talk to a lender; do your homework. But check this market out. And time is truly of the essence.