Beginning in 2008, the US government has changed tax rules, made money available and established programs for interest rate and loan modifications in an attempt to provide some relief to homeowners caught in falling real estate markets or rising mortgage loan rates. They have also provided tax credits to encourage home purchases. For a while, it seemed as though a month didn’t go by without a new program, and it is all rather confusing.
What follows is a brief outline of the programs that seem to be most helpful at the moment. Its purpose is to give you ideas about possibilities if you or someone close to you is in trouble – or would really like to buy a house. For details, you need to talk with your lender or your accountant. If the first one you talk to seems a bit fuzzy on the details, get a second opinion. There is too much at stake to miss the opportunity.
Let’s start with the fun part – buying a first home.
At this point, a first time homebuyer (defined as someone who has not owned a home within the past 3 years) can claim a credit of up to $8,000 against their income taxes if they buy a personal residence that closes by the end of 2009. This money stays in or comes back to the homebuyer’s pocket. If the house closes before that person files their 2008 taxes, they can claim it on their 2008 return (remember that you can get an extension for filing until October). If they file their 2008 return prior to the closing, they would claim it on their 2009 return. The $8,000 must be repaid ONLY if the house is sold or converted to a rental within 3 years of the closing.
Now let’s look at some other tax relief.
In the past, if you lost your house to foreclosure (or did a short sale) and didn’t have to pay back the difference between what you owed and what the lender received, the IRS counted that as income to you, and for tax purposes it was added to whatever income you had that year. So, if the bank lost $50,000 on the loan and you were in the 25% tax bracket, you owed an additional $12,500 in taxes for the year. That was a nasty surprise at tax time. The good news is that Congress changed the rule so that the forgiven debt is not taxable, but only for tax years 2007 – 2009. Four caveats on this one:
Homeowner Affordability and Stability Plan
This is the program launched March 4 by the Department of the Treasury to provide relief to homeowners who are
It applies to loans which are currently held by Fannie Mae or Freddie Mac, but any lender may participate. The FDIC, who has jurisdiction over lenders, has expanded the program to require participation by all lenders who have accepted TARP funds from the government.
The goal of the program is to make payments more affordable so that people can stay in their homes. It has 2 major components:
The Home Affordable Modification Program has the goal of moving qualified borrowers into fixed rate loans on which the payments are no more than 31% of gross income. Funding is a combination of government and lender funds. Some details of interest to borrowers:
The Home Affordable Refinance Program provides the opportunity for homeowners to refinance a current loan into a lower interest rate loan, even if their equity position has fallen substantially. As an example: Buyer purchased a home in 2005 for $200,000 with 20% down and a 3 year adjustable interest rate of 3.5%. Their loan to value (LTV) is 80%, which qualifies them for a loan conforming to Fannie Mae/Freddie Mac standards. By 2009 their home’s value has fallen to $160,000 and their interest rate has gone up to 7%. They need to get their payments down, but they don’t have enough equity in their home to refinance.
This is the scenario for which the program is designed. It enables a homeowner in this situation to get a new first mortgage for up to 105% of their home’s current market value. For the homeowner in our example, that means they could refinance their full current loan amount at current interest rates, thereby cutting their payments dramatically. They may still qualify even if they have a second mortgage, as long as the new first mortgage is less than 105% of the value of the home.
So how do you know if you are eligible Start by talking with the lender to whom you are making your payments. Go to www.MakingHomesAffordable.gov. The process can be confusing, but it can be so worth it. Good luck!
For further information or questions feel free to contact The Johnson Team at 360-303-2734, we would be happy to help!