Archive for the ‘Mortgages’ Category

$8,000 Tax Credit for First-Time Homebuyers

By: Green Panda | Date posted: July 24, 2009 (8:25 am)

As I’ve mentioned before, my husband and I are looking at homes to buy. We’ve weighed the pros and cons of renting and owning. We’ve been looking at how big a down payment we can make for the house.

What is the $8,000 Tax Credit for First-Time Homebuyers?

It’s a tax credit of up to $8,000 (no more than 10% of the home’s purchase price) is available for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.

Buying a home this year?

Buying a home this year?

Eligibility for the First-Time Homebuyer Credit

There are some requirements you have to meet before you can get the First-Time Homebuyers credit.

  • You must be a first-time home buyer.
  • The house must be bought between Jan. 1, 2009 and Dec. 1, 2009.
  • Your modified adjusted gross income (MAGI) is less than $95,000 for an individual or $170,000 for a married couple filing a joint return.
  • The house you purchase must be your primary residence.
  • The buyer must live in the home for at least three years after the purchase date. You will have t repay the credit on a home only if the home ceases to be your primary residence within 3 years from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence.

Tax Information on the First-Time Homebuyers Credit

IRS has information the tax credit for purchases made in 2009. Here are some answers from the IRS on common questions:

Q. I am in the process of buying a home. I expect to close the deal before December 1, 2009. Can I claim the first-time homebuyer credit now? That would allow me to use the refund for a down payment.

A. No. You may not claim the credit in anticipation of a purchase that has yet to happen. Until you have finalized the purchase of your home, which for most purchasers occurs at the time of the closing, you do not qualify for the credit.  IRS news release 2009-27, First-Time Homebuyers Have Several Options to Maximize New Tax Credit, contains details for filing options if the home is purchased after April 15, 2009.

Q: When must I pay back the credit for the home I purchased in 2009?

A:  Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009.

Q. If I claim the first-time homebuyer credit for a purchase in 2009 and stop using the property as my principal residence before the 36 month period expires after I purchase, how is the credit repaid and how long would I have to repay it?

A. If, within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full amount of the credit is due at that time the income tax return for the year the home ceased to be your principal residence is due. The full amount of the credit is reflected as additional tax on that year’s tax return. Form 5405 and its instructions will be revised for tax year 2009 to include information about repayment of the credit.

Your Thoughts

Will you buy a house this year? How much did the tax credit factor into your plans?

Photo Credit: roarofthefour

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How Much House You Can Afford?

By: Green Panda | Date posted: May 28, 2009 (6:25 pm)

As you know one of our financial goals is to build our house down payment fund. We would like to get a mortgage and have a small house or town house just outside the city.

I was reading a Scrooge Strategy tip on calculating on your savings plan. We’ve been setting aside some money, but we didn’t have an end goal. I wanted to get an idea of the size of the down payment we should be saving for.

I decided to check around the web and see what the personal finance calculator gave as ballpark figures. I got conflicting opinions on how much house we can afford. I thought it was interesting  to share with you how different the numbers can be if you only rely on web financial calculators.

How We Ran the House Down Payment Numbers on the Web

We used the median American income of $50,233.00 for this post’s numbers to give you an idea of what we found. We used a down payment of  $10,000. The mortgage rate was based on an approximate FICO score of 750 and Bankrate’s estimate of our locality’s rate of 5.1% for a 30 year mortgage.

For property tax and home insurance, we used the national average of $3,500 and $481.

What the Financial Calculators Told Us on How Much House We Could Afford

Bankrate’s Calculator had us enter a lot of information regarding gross monthly income and new house information such as insurance and real estate tax.

It also asked about our current debt payments, of which we have a student loan payment of $189/month. It gave us a home price limit of $191,639.27 and a monthly mortgage of $986.21.

CNN Money’s calculator asked about gross annual income, down payment, insurance, property tax, and monthly debts. The results were given from a conservative amount of $164,775.52 to an aggressive amount of $203,324.97.

The total monthly payments (mortgages, taxes, and insurance) would be $1,172.10 to $1,381.41.

Quicken’s Loans Calculator did it a bit different from the others. It asked us which state we were looking in (North Carolina)and  how much we wanted the mortgage payments to be.

I entered our current rent ($724) and it told us we could afford a mortgage of $88,983 to $93,028 , depending on the size of our down payment (estimated from $8,090 to $12,134).

There’s a big difference between the numbers.

Figuring Out a House Down Payment Goal For Ourselves

After comparing what was up on the web calculators, it looks like what we think we’d want for a mortgage is considered conservative. Our goal is to keep our housing costs (mortgage, taxes, and insurance) no higher than 25% of our monthly income.

That would mean our mortgage would be around 2.5x our annual income. Looking at that number, we’re setting a goal of 10% down (more would be better).

How did you plan your house down payment?

Using Zillow to Figure a Down Payment

By: Green Panda | Date posted: August 15, 2008 (8:42 am)

You’re thinking of getting a home someday. After seeing the current housing situation, you decide to be prepared for a home. How much house should you get? How much of a down payment are you going to need? What other expenses do you have to plan for?

There are many different opinions on how much house you can afford. The general consensus seems to be 2-3x your annual salary. Even if banks may suggest you can afford more, be careful. Look at your circumstances.

Do you have a high amount of debt? Considering pausing on buying a home and get that reduced as there are many other expenses included with purchasing a home (see below). It’s good to anticipate your financial needs ahead of time. Wat will bills be like after you purchase a home? Ask family and friends to get an idea.

How you can use Zillow to figure out a down payment.

Locate the city you want to live in. If you’re living in New York City or San Francisco, expect to need a HUGE down payment. Hopefully you income is also higher and can help you build your down payment. Use Zillow to locate affordable neighborhoods in the city and state you’re interested in.

Find the areas in the city with home you like. Within cities there are areas that have developed their own ‘personalities’. See for yourself if it’s the right area for you. Go there during different times and days.  If you’re a couple looking to start a family, you may not enjoy an area with a loud and active nightlife.

I also like to look at the Zestimate.  It can give you an idea if the asking price is reasonable. Select a couple of homes you would love to live in and determine the average price. Use this for your down payment fund estimate.

Aim for a down payment between 10-20%  the ‘dream home’. The advantage of this is that it will reduce your mortgage payment.

Stash your down payment fund in a high yield savings account. Speed along your savings by opening an account with banks with high interest savings like ING Direct, HSBC, Emigrant Direct, WaMu, and many others.

Remember there are other costs in buying a home (provided by Zillow). Try to include some buffer money for them. Also check the requirements for your state, as it can vary and you may have additional responsibilities.

  • Appraisal
  • Credit Report
  • Closing Fee
  • Title Search
  • Homeowners’ Insurance
  • Escrow Deposit for Property Taxes & Mortgage Insurance
  • Transfer Taxes
  • Recording Fees
  • Processing Fee
  • Underwriting Fee
  • Loan Discount Points
  • Pre-Paid Interest
  • Property Tax
  • Pest Inspection

Buying a home can be a great experience, but it can also be a nightmare. If you’re not in a position to buy a home, don’t worry. Rent can be a wise choice for many people. Don’t be impatient; wait for the right time.

Great Thoughts on Topic

Do you have more questions about getting a home and the basics of real estate? Here are some great articles I found on the web:

Photo Credit: by james.thompson

Discrimination in Mortgage Lending

By: Green Panda | Date posted: March 28, 2008 (11:21 am)

Dual Income No Kids had an article based on a book published regarding race and poverty. Wow, that’s a big topic that could fill its on site. James reviewed the books thoughts and summarized it.

In closing James remarked:

So, it seems that lower wealth in African-American and Hispanic families has less to do with discrimination and culture, and more to do with family dynamics and educational attainment.

That sentence bothered me a bit. If I had re-write the sentence, I would say:

It seems that lower wealth in African-American and Hispanic families has to do with educational attainment, discrimination, and family dynamics.

His conclusion seemed incomplete to me.

  1. Educational attainment and family dynamics has an effect on every race, not just those two ethic groups
  2. There have been documented cases of discrimination in areas of employment, education, and housing.

We don’t live in a perfect society. People are discriminated for many things besides race; such as gender, age, religion, and physical capabilities.home.jpg

Just looking at the mortgage area, there is concern over how lending is different among the races. By reducing cases of discrimination, it can help families, including African-Americans and Hispanics, to increase their personal wealth.

The Urban Institute researched some claims and did find evidence of discrimination in mortgage lending. Besides just documenting the problem, it tried to offer some solutions. Some suggestions that the Urban Institute recommended were:

  • The Urban Institute report concludes by recommending priority next steps in measuring mortgage discrimination and developing policies and practices to better combat it. These recommendations include:
  • Expanded research on lender decisions about office locations, advertising and outreach, as well as referrals that may discourage minorities from ever applying for loans with some institutions.
  • Stepped-up testing at the pre-application stage and possibly the loan approval stage as well, for research, enforcement, and self-assessment by lenders themselves.
  • New nationwide studies of mortgage lending, including analysis of mortgage loan performance to determine the “business necessity” of lending criteria and procedures that disproportionately disadvantage minorities.
  • Expanded research on loan terms and conditions, including examination of relatively recent market trends such as risk-based pricing and credit-scoring formulas, as well as analysis of overages and fees.
  • Rigorous evaluation of successful fair lending to find out what really works to increase lending to traditionally under-served groups.

My suggestion whether you’re a minority or not is to research your options thoroughly. Don’t just accept what they offer. Compare and shop around.

I enjoy reading DINKs, as James and Miel seem to find interesting topics to write about. This one just caught me eye and I wanted to write a response. I just felt that the author of the book they reviewed gleamed over some important issues. Let me know what you think about the books and its thoughts.

Any ideas on repairing mortgage lending practices, besides the discrimination issue for some? We’re thinking of getting a home within 12 months, so now it’s showing up on a radar a bit more than before.

Photo Credit:  Fabio

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