If negotiated in your purchase and sales agreement, a Seller may agree to chip in towards some or all of your bona fide closing costs, prepaids and reserves. They cannot contribute towards your down payment. The amount the seller can contribute varies depending on the program type and the amount of home buyer’s down payment. The percentage is based on the sales price and if the credit exceeds the closing cost, the mortgage originator can often use it towards discount points to buy down the interest rate.
Fannie Mae’s HomePath Program
October 15, 2010 by Leave a Comment
EDITORS NOTE: Fannie Mae is no longer offering the FannieMae HomePath mortgage program. If you are considering buying a Fannie Mae HomePath property (foreclosure that is owned by Fannie Mae) in Washington state, I’m happy to help you.
Fannie Mae’s HomePath program is available to purchase qualified foreclosed homes (owned by Fannie Mae) with expanded conventional guidelines, competitive mortgage rates and often times, with special incentives.
How to Buy a Seattle Home with $10,000
April 28, 2010 by 2 Comments
NOTE: Mortgage rates quoted in this post from April 2010 are outdated and no longer valid. For a current mortgage rate quote for a home located anywhere in Washington, please click here. Also, other programs available since this post was published.
I recently had someone getting ready to buy their first home ask me if $10,000 would be enough for a down payment. If she had served in the military, she could possibly qualify for a zero down VA loan; this was not an option for her. USDA loans also offer 100% financing but the area she’s considering is not classified as rural.
An FHA loan will currently allow her to buy a home with as little as 3.5% of the sales price. Until this summer*, sellers can contribute up to 6% of the sales price towards allowable closing costs and prepaids (*in a few months, this will be reduced to 3%).
So how much with $10,000 buy? How about a sales price of $285,000. Here’s how that pencils out.
$285,000 x 3.5% required minimum down payment = $9,975. This is the buyers minimum required investment if utilizing an FHA insured loan. A parent can gift funds towards this amount, but the seller cannot.
The rate (as of writing this post 4/28/2010) for an FHA insured 30 year fixed mortgage is 5.000% assuming we’re closing in 30 days (APR 5.620) and priced with zero points to help keep the closing costs down. Pricing the loan with zero points means that you’re asking the seller to contribute $2,750 less than they would if your rate was priced with a point (1% of the loan amount). This may make your offer more acceptable.
Based on this scenario, if the Seller contributes $5,500 towards allowable closing cost and prepaids, you’ll wind up needing approximately $10,000 for your down payment and remaining closing costs.
I did use 6 months for property taxes, which will vary depending on when your first mortgage payment is due. And I used 15 days of prorated interest which is based on closing in the middle of the month. Closing towards the end of the month reduces the prorated interest (your cost)…of course the trade off is that you don’t own the property until it’s closed.
The total monthly payment, including PITI and mortgage insurance, is going to be around $2,000 (depending on interest rate, taxes and home owners insurance). My scenario has a payment of $1981.
In addition to your down payment, you may be required to have reserve funds after closing of at least two months proposed mortgage payments. Based on this scenario, that would be around $4,000 in the bank (stocks, 401k, etc) after closing.
Also of note, your first payment will not be due until the month after closing unless you close on an interest credit. This is a great opportunity to “pay yourself” by putting that mortgage or former rent payment into your savings account. Owning a home does come with expenses…some not always planned.
If you are interested in buying a home located in Washington state, I’m happy to help. Please contact me or apply on-line by clicking the tab at the top this page.
15 Days Remaining for the Home Buyer Tax Credit
April 15, 2010 by Leave a Comment
NOTE: this is a post from 2010 and this tax credit is no longer available.
If you are planning on taking advantage of the home buyer tax credit, either as a first time home buyer or a "repeat" home buyer (aka "long time resident"), you have fifteen days to be in a binding sales contract with mutual acceptance. This means that both you and the seller have ironed out the negotiations which can sometimes take a few days to agree on…so in reality, you probably have less than 15 days unless you submit the "perfect" offer to the seller and they decide to accept it with no counter offers.
If you are hoping to claim the home buyer tax credit, you should check in with your mortgage professional to make sure that your preapproval is still valid. In the Seattle-Bellevue area, listing agents and sellers expect a preapproval letter to accompany the purchase and sale agreement before they will consider the offer.
Preapproval letters may expire if your paystubs, bank statements or credit report are outdated. The terms stated on the preapproval letter should match with the terms of the offer being presented to the seller. Mortgage rates have been volatile and if your debt to income ratios were "pushed" to the limit, you may or may not be qualifed for what you once were.
If your offer is countered past April 30, 2010 because you didn't have all your ducks in a row with your lender, you may not qualify for the home buyer tax credit.
And before you try to get into a mutual contract before the deadline–it's a good idea to make sure that you actually qualify for the tax credit.
You may be disqualified from the home buyer tax credit if:
- the government has deemed you make too much money–modified adjusted gross incomes up to $125,000 for a single taxpayer, or $225,000 joint, qualify for the full credit. Those with MAGI up to $145,000 for a single taxpayer and $245,000 joint qualify for reduced credit.
- if the purchase price is over $800,000 (better write that offer for $799,950 if your income qualifies).
- if the home being purchased is not going to be your primary residence.
- family members are not eligible (you cannot buy the home ancestors or dependents)
- if the contract is accepted after April 30, 2010
- if the transaction is closing after June 30, 2010
Remember, I'm your mortgage expert for homes located in Washington. I am not a tax expert–please consult your CPA or tax advisor for more information.
Did You Know that FHA Mortgages are Assumable?
April 14, 2010 by 2 Comments
One benefit of FHA insured mortgages is that they are assumable to qualified buyers. This means that if you have an FHA insured mortgage at today’s low rates and you’re selling your home during a higher mortgage rate environment, being able to offer a lower rate to potential buyers could provide a distinct advantage over other competing listings. [Read more…]
Claiming Your Home Buyer Tax Credit
January 28, 2010 by Leave a Comment
April 15th will be here before we know it and many are preparing for filing their income tax returns. If you are planning on claiming the home buyer tax credit (up to $8,000 for a first time home buyer or $6,500 for a repeat/long-time resident home buyer) there are some things you need to know as far as what the IRS will require.
First of all, you will not be able to e-file if you're claiming the home buyer tax
credit. This is because the IRS is requiring supporting documentation due to all the fraud that transpired previously with the first time home buyer tax credit. So along with Form 5405, you may also need to send the following when you submit your return to the IRS:
- a copy of your HUD-1 Settlement Statement with signatures of both parties (your autographs and the Seller's). In Washington State, this is something you receive from your escrow company.
If you're claiming the tax credit as a "long time resident" home buyer (meaning you've owned and occupied your previous residence for any 5 consecutive year period during the 8 year period ending on the purchase date of your new home), in addition the the Settlement Statement, you will also need to provide the IRS one of the following:
- Form 1098 or Mortgage Interest Statement
- Property Tax Records
- Home owner insurance records
The IRS is requiring this documentation to prove you owned and occupied your home for a minimum of five out of eight years. And per their instructions:
"These records should be for 5 consecutive years of the 8 year period ending on the purchase date of the new home."
Be sure to review the IRS Instructions for Form 5405 for more information and please consult with your tax professional to make sure you qualify. My specialty is helping Washington State residents with their residential mortgage needs…not income taxes!
If you are considering buying a home and taking advantage of the first time or repeat (long time resident) home buyer tax, you only have about three months left. You must have a binding contract (signed purchase and sales agreement) by April 30, 2010 which must close by June 30, 2010.
100 Days Remaining for the Home Buyer Tax Credit (and my 1000th Post)
January 20, 2010 by Leave a Comment
My apologies for the home buyer tax credit clock I've added to the left side bar of my blog ticking away the time remaining for home buyers tax credit. It's not my style, I don't like to pressure folks and I really don't like telling someone that they missed an opportunity.
Whether you are for or against our home buyer tax credit it is something that many home buyers, first time and "move-up" home buyers, will take advantage of. Unlike the first tax credit that was passed where the home buyer had to pay it back over 15 years, this is a "tax credit". This credit repaid if you sell your home within three years.
The available tax credit for first time home buyers (those who have not owned a home in the last 36 months) is up to $8,000. For the "move-up" or "long-time resident" (you don't have to be buying a bigger home to qualify), the available tax credit is up $6,500. The long-time resident is defined as someone who has owned their home as their primary residence for the last three out of five consecutive years. The tax credit for both first time and long time residents is for the purchase of a primary residence (owner occupied).
Income limits were raised for transactions closing after November 6, 2009 to up to $125,000 modified adjusted gross income (MAGI) for taxpayers and $225,000 for joint filers. The credit is reduced up to those with MAGI above $145,000 for single and $245,000 for joint.
Homes with a sales price of over $800,000 are not eligible (too bad–the Jumbo market needs all the help it can get).
In order to qualify for the tax credit, home buyers must be in contract to purchase a home by April 30, 2010 (100 days away as of today)* with a closing date no later than June 30, 2010 (no summer vacations for escrow officers in June). Home buyers will need to file IRS Form 5405 and be sure to include a copy of their HUD-1 Settlement Statement.
Members of our Armed Forces serving outside of the United States have been granted an extra year for the tax credit. They must be in contract by April 30, 2011 and close prior to June 30, 2011.
Check with your tax advisor for more information.
Special note: this is my 1000th article posted at Mortgage Porter! Thanks again for your continued support and readership.
Tax Credit for Home Buyers who have Owned a Home
November 24, 2009 by Leave a Comment
I was asked this question by one of my friends on Facebook:
"I was listening to one of your videos from last Monday and you mentioned something about a tax credit for people who has owned their homes for the past 5 out of 8 years… Do you know what that is all about yet?"
When the first time home buyer tax credit was extended with the "Worker, Homeownership, and Business Assistance Act of 2009", Congress added a few goodies, including increasing the qualifying income limits and allowing folks who have owned a home out of the past 5 out of 8 years to participate with a tax credit of up to $6,500. This tax credit has been pegged as one for a "move-up" home buyer, however it just needs to be a primary residence–it does not need to be larger or more expensive than the last residence. In the Act, these home owners are referred to as "long-time residents of the same principal residence".
One does not have to sell their current residence in order to qualify, from the IRS:
If you meet all of the requirements for the credit, the law does not require you to sell or otherwise dispose of your current principal residence to qualify for a credit of up to $6,500 when you buy a replacement home to use as your principal residence.
The IRS uses this example for occupying your home in the last five out of eight years:
The requirements are that you must buy, or enter into a binding contract to buy, the replacement principal residence after Nov. 6, 2009, and on or before April 30, 2010, and close on the home by June 30, 2010. Additionally, you must have lived in the same principal residence for any five-consecutive-year period during the eight-year period that ended on the date the replacement home is purchased. For example, if you bought a home on Nov. 30, 2009, the eight-year period would run from Dec. 1, 2001, through Nov. 30, 2009.
The tax credit is only valid for homes priced under $800,000. I'm not sure why they put this limit on the sales price when there are all ready income limits and limits to the amount of the tax credit in place. The upper end of the housing market can really use some help.
Qualifying adjusted gross income limits have been raised for first time home buyers and repeat home buyers to $125,000 for single people an up to $225,000 for married couples for the full tax credit.
If after 36 months from purchasing the home, if it ceases to be the residence that you occupy (you've sold the home or converted it to a rental, for example), the tax credit may be required to be repaid.
I don't recommend buying a home just because of the tax credit. There are costs to owning a home that will present themselves long you've enjoyed your $6,500. If you are counting on receiving the tax credit, do visit the IRS's site and make sure you will actually qualify by completing the proper form. I remember meeting with one of my clients who was buying her first home, when we reviewed the tax form together and she discovered she barely made too much money to qualify, she was disappointed. She did go through with her purchase and she loves her home…but knew before getting too far into a purchase transaction that she was not going to qualify for the $8,000 first time home buyer tax credit (she would now with the increased income limits).
Check out this FAQ for the Repeat Homebuyer Tax Credit for more information.
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