Real Estate Experts Give Insight into the Federal Housing Tax Credit

If you are looking to buy a home for the first time, there is no better time to buy than right now. First time home buyers can qualify for an $8,000 Federal Housing Tax Credit if they purchase a home by 4/30/2010 and close the sale by 6/30/2010 . Move-up buyers, who purchase a new home and sell their previous home during that same time period, can receive a $6,500 tax credit with qualifying income levels and years of homeownership.

On top of the tax incentive, interest rates are at a near a record low making home purchases even more attractive. Rates currently hover around the high four percent range: conventional and Federal Housing Administration mortgage rates are at 4.875% with VA being slightly higher at 5%, according to Mike Proctor of Genesis Mortgage Company in Kingwood.

Correspondingly, home sellers are taking note of the housing market interest and putting their homes on the market at rapid pace. From Jan. 4 – Feb. 7 of this year, new listings of single-family homes in Houston are up 6.9% versus a year ago, reports the Houston Association of Realtors. The most recent week ending Feb. 7, 2010 showed a double digit (11.4%) gain in listings over last year.

Real estate experts at Keller Williams Realty Northeast and Genesis Mortgage are noticing trends related to the tax incentive. Many young buyers, who don’t have the money for a down-payment on a house, are getting cash gifts from parents or family members to buy now and take advantage of the tax credit. Proctor explains that such assistance is allowed on FHA loans and, in some cases, conventional loans as well.

Keller Williams Realtor Joyce Quinn-Nichols is working with a single mom and first time home buyer who is applying the tax credit towards her closing costs on a new home she is buying from a builder. “The buyer is using the $8,000 tax credit to replenish the funds she’ll be using for closing costs on her new home,” says Quinn-Nichols. “After closing the deal on her new home, she will fill out and submit Form 5405 to the IRS.  She should receive her $8,000 tax credit check in 6 to 8 weeks.” Form 5405 can be found on the IRS Web site. 

This scenario is one example of what the IRS calls: “monetization of the tax credit” or cashing in on the tax credit incentive.  According to the IRS Web site, the Department of Housing and Urban Development permits “buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2010 income taxes to receive a refund.” The IRS permits these funds to be used for certain down payment and closing cost expenses.

There is another way for home buyers to access the funds associated with the tax credit sooner than waiting to file a 2010 tax return. As detailed on the IRS Web site, prospective home buyers who believe they qualify for the tax credit can reduce their income tax withholding up to the amount of the credit. By reducing withholding tax, buyers are able to accumulate more cash-on-hand by increasing their take home pay. The extra cash can then be applied to the down payment on a new home.

Like most government initiatives, the Federal Housing Tax Credit rules are long and complicated. Home buyers should get the facts straight before pursuing the tax incentive.

“The biggest tip we can give to our buyer is to talk to their lender to get the details of how this tax credit works in conjunction with the loan process,” says Keller Williams Realtor Roland Duhon. “I would also suggest they talk to their tax accountant for additional accurate information concerning the processes for both the first time home buyer and the current home seller/buyer tax credits.”

While the tax credit was designed as a means to stimulate the economy, it could have the opposite affect once it goes away. Capitol Hill may choose to renew the tax credit a second time when it expires in April. “There is a possibility of the tax credit being extended, but that is in the hands of the government to decide,” says mortgage lender Proctor. “There is no guarantee the extension will be approved.  With this in mind, now is the time for buyers to get with their Realtor and take advantage of the opportunity as soon as possible.  The clock is definitely clicking as we approach the springtime deadlines for the tax credit.”

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