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The Federal Government had its citizens captivated with the anticipation of the Senate’s $15000 tax credit that was quickly rejected in committee.  This credit generously provided homebuyers – not just first-time homebuyers – with a tax credit of up to $15000.  Instead, negotiations on the bill increased last year’s $7500 housing credit by $500 resulting in the approved $8000 tax credit, or 10% of the purchase price– whichever is less.  It also eliminated the requirement to payback the credit so long as you don’t sell your home for three years.

So what does this mean to you if you utilized the 2008 housing credit?  Under in the 2008 provisions, taxpayers will indeed by encumbered with its limitations including payback of the credit and realization that it was simply a 15 year no-interest loan, payable in 15 installments, beginning in 2010. Oh yes… and that it was a credit of $7500, $500 less than the 2009 version.

Under the umbrella of the 2009 version of this housing credit, only first-time homebuyers are eligible - eliminating a significant number of hopefuls from the original $15000 tax credit version.  “First-time” homebuyers, however, are defined as purchasers who have neither owned a home nor co-owned a home within the three years preceding their home purchase that must be made January 1 – December 31, 2009.  But remember… you must not have closed on a home in the three years preceding your closing on the 2009 property.  That said, your closing date of your 2009 purchase must be at least three years from any previous real estate closing in order to qualify for the $8000 tax credit.

And what about income and other eligibility limitations?  This version sets eligibility at $75,000 adjusted gross income for single taxpayers, and $150,000 for couples filing jointly. Additionally there is no exclusion against purchases under state or local tax-exempt mortgage revenue bond programs. As with the original $15,000 version, the purchase must be your primary residence and includes condominiums, single-family homes, co-ops, houseboats, and mobile homes, to name a few.

So how will this minor increase in housing tax credit help the waning economy? Congressional hopefuls site the possible “ripple down effects” of taxpayers spending on furnishings, appliances, brokerage commissions, moving costs, etc.  And as with the earlier incentive, they’re hoping it will be the jolt the economy needs to turn-around.

So how do you apply for the $8000 housing credit? It’s easy. Just claim it on your tax return – either your 2008 or 2009. No other forms or papers need to be filed. Taxpayers who submitted their returns can file amended returns for 2008 to claim the credit.

Although this final version is far less than anticipated from the original $15000 tax credit version, it’s worth a look.  If you qualify, and don’t pay $8000 in taxes, you get the rest as a check. For some…not bad at all.

Clearly the federal government wants its citizens engaged in the housing market again.  As part of the original 2009 stimulus package, a 15000 tax credit for homebuyers is emerging as an incentive for those who are considering this investment. The $15000 tax credit bill is yet to be a federal law, but its passage in the Senate sets the course for its approval.  So far, it is yet to be signed by the House, indicating that its terms are still subject to change.

So what is this $15000 tax credit and who is eligible? Georgia Senator Johnny Isakson (R) is the prime sponsor of this bill.  As a former real estate broker  I s a k s o n believes it will work just as a similar bill worked in the mid-1970’s when America faced a surplus of foreclosed and vacant homes.  Isakson believes that passage of that $2000 tax credit resulted in home value stabilization, a decrease in housing inventories, and most importantly, a housing market recovery.

The existing bill still under consideration hopes to provide a tax credit to any homebuyer purchasing a home – not just first time homebuyers. This translates to any home occupied as a primary residence including condos and single-family homes whether they are foreclosed, new, or previously owned. A tax credit ceiling of $15000 or 10% of the purchase price– whichever is less– is written into the current form of the 15000 tax credit.  Any homebuyer is eligible for the credit within one year of the bill’s passage and the tax credit is exempt from repayment - unlike last year’s $7500 tax credit.  That tax credit was actually a 17-year repayment, consequently making it a no-interest loan. Income limits or any retroactive action on the 2009 bill is yet unresolved.  And as far as the homebuyers 2008 tax return, this bill allows taxpayers  t o   c l a i m   t h e   c r e d i t  as if the purchase was made on December 31 of 2008, even though the purchase takes place in 2009. 

Of course the federal government is seeking to insure against misuse, which is why the 15000 tax credit is restricted to purchases to one’s principal residence. Additionally, if the home is sold within two years of purchase, the government automatically recaptures the credit.  And what about the last year’s $7500 housing credit for first-time buyers? Enactment of the $15000 tax credit would put it to rest.
 
Confused?  There are no concrete answers at this time.  This tax credit is part of the massive and controversial economic stimulus package.  However, there is more information regarding the $7500 tax credit through your agent or at the IRS website at www.irs.gov/newsroom/article/0,,id=186831,00.html. Until the $15000 tax credit bill is signed by the President, there will continue to be questions.

Update:  The $15000 bill was negotiated in committee and decreased to $8000.  Please read my next article - The New and Approved $8000 Housing Tax Credit – for further information.

As of February 6, 2009 Fannie Mae expanded the financing options for borrowers of investment in rental property and second home borrowers to finance up to ten properties if specific eligibility requirements and financial prerequisites are met.  Thus, Fannie Mae has realized the importance that investment in rental property has on our economy.  Previous investment property laws stated a borrower may only finance up to four one-to-four family unit properties and only if the mortgage of the said properties is secured by a second home or other investment property.
 
Requirements:

• On one-family unit investment rental properties, the property may only be financed up to 75% of the loan-to-value with a minimum credit score of 720.
• On two-four-family unit investment rental properties, the property is limited to 70% of the loan-to-value with a minimum credit score of 720.
• On one-four family unit investment rental property cash-out-refinances, the property will only be qualified for a cash-out refinance if the loan-to-value is 70% or less and the borrower’s credit score is 720 or higher.

Financial Prerequisite:

• The said borrower may not have a history of bankruptcy or foreclosure within the last seven years.
• The said borrower may not have any late payments on any existing properties within the last year.
• Rental income of any existing investment properties must be fully documented.
• The said borrower must complete the 4506 form to request income taxes directly from the IRS.
• The said borrower must retain adequate reserves for all investment rental properties.  Reserves are typically going to be two-six months of monthly property income depending on property type and the number of financed properties.

This new guideline will increase the number of investor loans in the marketplace and will hopefully be a key role in the economic upturn. If you are looking to purchase a second home or an investment in rental property in Texas, you can now finance up to ten investment properties.

Please call me at 1-512-750-9197 or email me at rachel (@) lonestarfinancing.com to discuss your financing alternatives.   I will be happy to present you with the various options you have regarding second home or investment in rental property financing.