The home builders’ study reports a major return on value for extra bathrooms: “When the number of bathrooms is approximately equal to the number of bedrooms, an additional half-bath adds about 10 percent to the home’s value, and one additional bath adds about 19 percent.”
• The $8,000 tax credit is available for first-time home buyers only.
• The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase.
• All U.S. citizens who file taxes are eligible to participate in the program.
• The tax credit is a true credit. It does not have to be repaid.
• The only repayment requirement is if the home owner sold the home within three years after the purchase.
• Home buyers who file as single or head-of-household taxpayers can claim the full $8,000 credit if their modified adjusted gross income (MAGI) is less than $75,000.
• For married couples filing a joint return, the income limit doubles to $150,000.
• Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit.
• Married couples who earn between $150,000 and $170,000 are eligible to receive a partial first-time home buyer tax credit.
• The credit is not available for single taxpayers whose MAGI is greater than $95,000 and married couples with a MAGI that exceeds $170,000.
Effective Dates for the Tax Credit
• First-time home buyers would receive an $8,000 tax credit for the purchase of any home on or after January 1, 2009 and before December 1, 2009. To qualify, you must actually close on the sale of the home during this period.
Tax Credit is Refundable
• A refundable credit means that if you pay less than $8,000 in federal income taxes, then the government will write you a check for the difference.
• For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $3,000 payment from the government.
• If you are due to receive a $1,000 tax refund from the government, your refund would grow to $9,000 ($1,000 plus $8,000 from the home buyer tax credit).
• Buyers can take the tax credit on their 2008 or 2009 income tax return.
Types of Homes that Qualify for the Tax Credit
• All homes, whether single-family, townhomes or condominium apartments will qualify, provided that the home will be used as a principal residence and the buyer has not owned a principal residence in the prior three years. This also includes newly-constructed homes.
For more details on the tax credit, go to www.federalhousingtaxcredit.com
The appraisal is the keystone for lenders to base their lending limits on, aside from the buyer’s personal financial situation. Every purchase contract is going to have a financing clause that states:
There are four options when this situation occurs.
1) The buyer can bring cash over an above the down payment amount and pay the difference, still being able to attain a mortgage on the appraised value.
2) The seller can reduce the purchase price to the appraisal price.
3) They can do a combination of 1 & 2.
4) Or, elect not to proceed with the purchase and sell of the property.
In this situation, if you are the seller your options are limited to reaching an agreement, not selling, or waiting in hopes of a cash buyer that will pay the difference. The main reason is due in fact to FHA rulings stating that FHA appraisals will remain attached to a property for a 6 month period. This means, depending on your circumstance you must be willing to reduce your sell price to appraisal value.
Buyer’s at times end up reaching a better deal because of this little contingency, but many deals are falling apart because neither party has the means to negotiate up or down. Most FHA buyers are only putting 3.5% down for a reason.
The moral of the story is be careful regardless of which side you are on, because going through negotiations, inspections, and planning how you are going to arrange your living room furniture, only to find out that you are paying well over market price for a home is not a comfortable scenario. Stay away from outrageously priced homes with sellers hesitant to negotiate. The well priced homes are out there they just don’t tend to hang around very long.