Nov
20
2009
| Q: _Existing homeowner credit: Must the new house cost more than the old house? |
| A: _No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6500 credit. |
| Q: _I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. Do I qualify for the new $6,500 tax credit? |
| A: _Yes. The existing homeowner credit went into effect for purchases after the date of enactment (Nov. 6, 2009). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement. |
| Q: _I am a first-time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits. When I go to settlement, will I be eligible for a credit? |
| A: _Yes. The new income limitations went into effect as soon as the President signed the bill. The income limit and other eligibility rules look to your status as of the date of purchase, which is the settlement date. So you should be eligible for the credit (or a portion of the credit if you’re within the phaseout range). |
| Q: _I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a nonnegotiable price of $825,000. Will I be able to use any of the $6,500 tax credit? |
| A: _No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling. |
| Q: _I owned my home for 10 years, but sold it two years ago year and have been renting since. If I purchase a home, will I be eligible for the $6,500 tax credit if I meet all the other eligibility tests? |
| A: _Yes. Because you lived in the home for more than 5 consecutive years of the previous 8, you will qualify for the $6,500 credit. For example, say John and his wife bought a home in 2000 and lived there until 2008 when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for 5 consecutive years out of the last 8 years. The keyword here is “consecutive.” As long as he lived in that house for 5 years straight, what he did since then doesn’t impact eligibility. |
| Q: __I am an eligible first-time homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me? |
| A: _You do not have to close before December 1. Once the legislation was signed, it was as if the November 30 date had never existed. Therefore, so long as the binding contract is in place before April 30 and you close by July 1, you will be eligible for the credit. |
Nov
19
2009
|
Feature
|
Jan 1 – Nov 30 2009
Rules Enacted February 2009
|
Nov 7, 2009 – April 30, 2010
Rules Enacted November 2009
|
| First-time Buyer – Amount of Credit |
$8,000
($4,000 married filing separate)
|
$8,000
($4,000 married filing separate)
|
| First-time Buyer – Definition for Eligibility |
May not have had an interest in a principal residence for 3 years prior to purchase
|
Same
|
| Current Homeowner – Amount of Credit |
No Provision
|
$6,500
($3,250 married filing separate)
|
| Effective Date – Current Owner |
No Provision
|
November 7, 2009
|
| Current Homeowner – Definition for Eligibility |
No Provision
|
Must have lived inprincipal residence consecutivelyfor 5 of the previous 8 years
|
| Termination of Credit |
November 30, 2009
|
April 30, 2010
|
| Binding Contract Rule |
None
|
So long as a written binding contract to purchase is ineffect on April 30, 2010, the purchaser will have until
July 1, 2010 to close
|
| Income Limits(Note: Increased income limits are effective as of November 7, 2009) |
$75,000 – single
$150,000 – married
Additional $20,000 phaseout
|
$125,000 – single
$225,000 – married
Additional $20,000 phaseout
|
| Limitation on Cost of Purchased Home |
None
|
$800,000
|
| Purchase by a Dependent |
No Provision
|
Ineligible
|
| Anti-fraud Rule |
None
|
Purchaser must attachdocumentation of purchase to tax return
|
Oct
20
2009
The newest version of the FICO credit-scoring (FICO 08) system no longer penalizes minor delinquencies (amounts of less than $100) in calculating credit worthiness. A single delinquency that’s more than two years old will also carry less penalty than in the past. This will certainly be a boost to home buyers looking for a mortgage, as mortgage lenders increase minimum credit scores to qualify for a home loan.
However, while the new system provides more flexibility for missing a small payment, if you are habitually late in paying your bills, you may be more penalized for that than in the past. And if your credit usage is high and close to your limits, you may still be penalized even if you pay your bills on time.
Experts say that with these changes, individuals who pose a low credit risk may see their credit scores rise bit, while those who are high risk could very well see their credit scores drop.
Meantime, not all lenders have adopted FICO 08 as yet, so be aware if you are applying for any type of credit.
Regardless of the changes, you should be doing everything you can on a consistent basis to improve your credit scores. Here are a few suggestions on how to do so:
- Regularly monitor your credit reports and correct errors. This includes looking for incorrect negative reports, but also looking at your reported credit limits to make sure they are accurate.
- Pay bills on time and keep card balances low. FICO 08 is more sensitive to high credit usage and a balance close to the credit limit.
- Take on new credit ONLY when you need it. Accepting too many credit offers, no matter how tempting, could decrease your overall score.
For more information about credit scoring visit the Credit Education Center and/or download a great “whitepaper” about understanding your credit score.
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