New Wrinkls to the Tax Credit

Things are slowly moving on the First Time Buyers' Tax Credit. The revision will not help you if you use a conventional mortgage. It will not help you if you still have $0 down. There are organizations that might be able to help you in that situation. Details of the revision were released Friday.

Let's recap the basics of the credit:

1. You are entitled to a tax credit of 10% of the purchase price of your home up to $8000.
2. You cannot have owned a home in the last 3 years.
3. Your income cannot exceed $75,000 ($150,000 for couples.)
4. You must purchase your home before 1 Dec, 2009.
5. Your can file an amended return for 2008 or take the credit on your 2009 taxes when you file next year.
6. The sale must have closed before you do #5.

The new updates:

1. You may get "an advance" on the credit.
2. Your mortgage must be FHA underwritten.
3. You must still have the FHA required minimum 3.5% down payment.

How does this really help?
You may be able to reduce your mortgage amount.
You may be able to buy without the seller assistance with closing costs.
You might be able to buy a slightly better home.

For example, In our market the average selling price is about $65,000 (rounded off to make a simple example). You have a pre-approval from your FHA lender ($55,000). You found a home that you love but the best counter offer you receive is $60,000. Since all you have is the 3.5% down, under the old rules you would have to walk away unless you could raise the down payment. Under the new rules, you would now be able to buy.

Selling Price: $60000.
Required Down Payment: $2275.
Pre-paids and closing costs: $1800.
Mortgage: $55,000.
Shortfall: $4525.
10% Tax Credit: $6000.
Surplus: $1425.

The surplus can be added to the down payment to lower your monthly payment a little.

I read several articles today warning of scams. You can be sure that once the programs role out fully, some one will devise some a way of twisting it to turn a profit. Just be careful. After all these scam artists took advantage of people who were facing foreclosure. They have no shame.

Just to be safe if you have specific questions about the tax implications of this program speak to your tax preparer or accountant. This is not intended to be legal or financial advice.

The details have not yet reached local lenders. In fact, one told me today she hadn't heard this revision is in the works. I will keep you posted.