Mortgage Workout Programs for Homeowners

On Wednesday, February 18, 2009, President Obama announced his new Homeowner Affordability and Stability Plan to help troubled homeowners avoid foreclosure. This plan will offer assistance up to 9 million homeowners and applies only to primary residences. The first component of the plan allows homeowners who are current to refinance an existing Fannie Mae or Freddie Mac conforming loan with a loan-to-value ratio up to 105 percent. The second component addresses homeowners who are at risk of foreclosure on their mortgages, but they do not have to be delinquent. The government will work with the lenders to ensure that monthly mortgages do not exceed 31 percent debt-to-income ratio. Furthermore, the government will seek to create clear and consistent guidelines for loan modifications.

Click here for more information about the Making Home Affordable Program.

Important Information About the First-Time Homebuyer Credit

Team Patereau was discussing what can and can't be done with the First-Time Homebuyer Credit that came out of the Obama bailout plan. I said that our client can close on their first-time contract before June 30, 2010, and claim the credit on their 2009 tax return. The other half of Team Patereau said that wasn't the case. So, I looked it up at the IRS website, and sure enough, you can! There's plenty of other rules, but here's the key points, and you can and should discuss these with your tax preparer. One reminder, you can't e-file if you add this form to your mix. What the heck is that about?

1. You must buy – or enter into a binding contract to buy a principal residence – on or before April 30, 2010.
2. If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010.
3. For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return.
4. A long-time resident of the same home can now qualify for a reduced credit. You can qualify for the credit if you’ve lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009.
5. The maximum credit for long-time residents is $6,500. However, married individuals filing separately are limited to $3,250. The maximum credit for first-time homeowners is $8,000 (up to $4,000 for married filing separately).
6. People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The full credit is available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers.
7. The IRS will issue a revised Form 5405 to claim this credit on 2009 tax returns. The revised form must be used for homes purchased after November 6, 2009 – whether the credit is claimed for 2008 or for 2009 – and for all home purchases that are claimed on 2009 returns.
8. Homebuyers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return. For homes purchased in 2009 there is an option to take the credit on an original or amended 2008 tax return.
9. The new law includes documentation requirements. See revised Form 5405 for details.
10. No credit is available if the purchase price of the home exceeds $800,000.
11. The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.
12. A dependent is not eligible to claim the credit.

IRS encourages all eligible homebuyers to take advantage of the First-Time Homebuyer Credit but at the same time cautions taxpayers to avoid schemes that help ineligible people file false claims for the credit. Visit IRS.gov/recovery for more details on the First-Time Homebuyer Credit. Forms are available on www.irs.gov or by calling the IRS at 1-800-829-3676.

Just So You Know...

Here's come information from CNN Money.com that gives you a heads up on the Federal First Time Buyers Tax Credit. Only the IRS can change things, but knowing the rules for getting the credit are helpful.

Just as the Teschkes in the article, several of our First Time Buyers are planning to use their increased tax refund due to the tax credit to invest in improvements for their new home. In our humble opinion, the stimulus is working.