Who Closes a Sales Center on Friday?

Friday after work I braved the west-side traffic for a visit to a Dominion community off  Renner Road, just a stone’s throw from Hilliard-Rome. They have a fully furnished Richmond over there, and I wanted to snap some photos of the interior. From the time I left Route 70, a half-hour elapsed before I pulled into the parking lot. Keep in mind that the community is less than a half-mile from the exit. Probably the worst traffic nightmare I have ever witnessed. People who live over there have to deal with this mess every day, the result of a never ending road-construction project. I figured I could brave it because, you know, it was only for this one time. Right?

Wrong.

As I was turning off the car and reaching into the back seat for the camera, it occurred to me that the place looked deserted. My jaw hit the steering wheel as I read the sign outlining the hours of operation: “Friday by appointment  only.”  Sonovabitch! Who the hell closes a sales center on Friday?

Like a peeping-Tom, I crept up to the kitchen window and peered in. Looked beautiful, but there was too much glare on the glass to get a good picture of the interior. Same situation at the front of the house looking into the living room. I could see interior clearly by putting my face up against the glass, but could not snap a decent photo. So I will be braving the horrid traffic again, but only after checking the hours beforehand. Stay tuned to see the interior photos of the model house sometime in the next week.

 

—Michael

Floor Plans

Here are the floor plans for the house. It’s called a Richmond. Could have been worse. They might have called it a Detroit. Sorry Detroit, I didn’t mean that. We spent a wonderful weekend in Detroit when we went up to Ford Field to see the Dolphins kick the living hell out of the hapless Lions a few years ago. We stayed at a wonderful, independent hotel comprised of rooms and suites located in three Victorian homes and a carriage house that had been renovated specifically for the purpose. But that’s a story for a different blog.

Back to the point. Below are the floor plans of our soon to be built house. The house has only two bedrooms, but the loft space can easily accommodate a sleeper sofa or futon for additional guests. There’s a master bath and a half-bath on the first floor, and another full bath upstairs. Even though it’s barely 1450 square feet, it seems a lot larger due to the open ceiling created by the loft.

—Michael

 

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All About the First-time Homebuyers Tax Rebate Program

I have pasted an FAQ about the Home Buyer Tax Rebate for 2009 from a Website hosted by the National Association of Homebuilders. For further information, visit the Website directly.

 

  1. Who is eligible to claim the tax credit?
    First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.                 
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  3. What is the definition of a first-time home buyer?
    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. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer. 

  4. How is the amount of the tax credit determined?
    The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
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  6. Are there any income limits for claiming the tax credit?
    Yes. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
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  8. What is “modified adjusted gross income”?
    Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine “adjusted gross income” or AGI. AGI is total income for a year minus certain deductions (known as “adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income. See IRS Form 5405 for more details. 

  9. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
    Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.
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  11. Can you give me an example of how the partial tax credit is determined?
    Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

     

  12. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
    The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous “credit” was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.
  13. How do I claim the tax credit? Do I need to complete a form or application?
    Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase.
  14. What types of homes will qualify for the tax credit?
    Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.
  15. I read that the tax credit is “refundable.” What does that mean?
    The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed). 

  16. I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?
    Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.
  17. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
    Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. 

  18. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
    Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.
  19. I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?
    No. You can claim only one.
  20. I am not a U.S. citizen. Can I claim the tax credit?
    Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in IRS Publication 519.
  21. Is a tax credit the same as a tax deduction?
    No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800. 

  22. I bought a home in 2008. Do I qualify for this credit?
    No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit. Please consult with your tax advisor for more information.
  23. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?
    Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.

    The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs, which can be found here.

     

  24. The Secretary of Housing and Urban Development has announced that HUD will allow “monetization” of the tax credit. What does that mean?
    It means that HUD will allow buyers to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.Under the guidelines announced by HUD, non-profits and FHA-approved lenders will be allowed to give home buyers short-term loans of up to $8,000.The guidelines also allow longer term loans secured by second liens to be used by government agencies, such as state housing finance agencies, to facilitate home sales.

    Housing finance agencies and other government entities may issue tax credit loans, the funds of which home buyers may use to satisfy the FHA 3.5% downpayment requirement.

    In addition, approved FHA lenders will also be able to purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5% downpayment that is required for FHA-insured homes.

    More information about the guidelines is available on the NAHB web site. Read the HUD mortgagee letter (pdf) and an explanation of the FHA Mortgagee Letter on Tax Credit Monetization (pdf). An FAQ about monetization (pdf) is available at the NAHB web site.

     

  25. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
    Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this. 

  26. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
    Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

Mortgage Madness

Point-six-two-five. That’s the difference one week made when locking in our mortgage rate. Back when we first inquired, we were quoted an FHA 30-year-fixed mortgage rate of 4.5%. Last Friday the mortgage market saw the largest single-day jump in rates that anyone in the industry can remember. Consequesntly, 4.5% quickly morphed into 5.125% over the weekend. Still…5.125% is really nothing to complain about. Perusing the historical mortgage rate  information for the last 30 years or so reveals that mortgage rates peaked in October 1981 at an eye-popping 18.45%!

Despite the higher rate, our meeting with the Loan Officer over at Centennial Home Mortgage  went better than expected. Centennial is a partnership between Wells Fargo Home Mortgage and Dominion Homes. Dominion offers homebuyers an incentive for using their own mortgage partner—they will pay up to 3% of the purchase price to cover closing costs or to buy down the rate.  We are using that money to buy down the rate. Dominion offers another incentive for employees at Nationwide Insurance, where I work. An additional $3000 is offered to Nationwiders that can be used to pay closing costs or pay for options to the home, thus lowering the purchase price. We chose to use this money for our closing costs.

A third incentive program offered by Dominion is called “Helping Hand.” It allows the buyer to earn up to 4% of the purchase price for the downpayment by completing one or more projects on the house during construction. One example is called “The Great Outdoors,” and requires the homeowner to clear the lot of large rocks and debris, to plant the landscaping and spread the mulch, and to apply sealer to the sidewalks and driveway. For this they pay $800. Helping Hands Work Equity ProgramsPainting the interior and attaching doorknobs and shelving is called “Fresh Coat.”  Completing this one earns you a cool $2100. We are both pretty excited about this program because we feel like working on the house in this way will give us greater pride of ownership. I will keep you posted about how the projects go once we actually get to that point. As of today, they haven’t even broken ground.

What these incentive programs mean to us is that we will be moving into this house with ZERO DOLLARS out of pocket! They will even be refunding us our deposit and mortgage app fee. So we could actually be walking away from the table with almost $1000 in our pockets. Or we could choose to use that money to further buy down the interest rate on the mortgage. Tough call. We will probably use the cash for new furniture and window treatments.

Yay, us!

 

—Michael

Sorry, Jim

My mouth was getting dry, and I could feel the hesitation creeping up my throat. Just when I thought my call would go to voice mail, he answered.  “Good afternoon, this is Jim”.

“Hey Jim, this is Michael calling, how are you doing?”

“Doing great, how can I help you?”

“I just called to let you know that Shannon and I have decided to buy the new construction. So we won’t be needing your services for this purchase.”

There was a brief pause as he reacted to the news. Mortgage brokers work on commission. Losing our relatively small transaction probably won’t make very much difference in the long run, but every fisherman regrets the ones that get away. Jim, a VP at Swain Mortgage Company in Westerville, had been great to us, spending several hours educating us on the mortgage market, and setting our expectations for the purchase ahead. In the end we simply couldn’t walk away from the cash incentives the builder was offering for using their mortgage partner. Still, I felt as if I were betraying a family member.

“Okay. Well, I did know you were leaning that way,” he answered, “thanks for calling and letting me know.”

“It’s no problem. I just wanted to tell you that we really enjoyed meeting with you, and would definitely recommend your company to our friends and family. And we will certainly consider using you for our next purchase.”

Another awkward pause, this time by me. “Uhm,” I stammered, “do we owe you for the credit reports or anything else?”

“No, the cost is small enough that I will just go ahead and pay it. But that was very nice of you to ask.”

There really wasn’t anything left to say. “Okay, thanks again, Jim.”

“Thank you for calling to let me know, and good luck with the new house.”

 

—Michael

Episode IV: A New Hope

“Oh, I meant to tell you what Jeff was telling me today about what a great time it is to buy a house,” Shannon said a few weeks ago. “He told me there is a tax rebate of $8000 for first-time buyers, and that interest rates are at an all-time low. He gave me the name of a friend of his who’s a mortgage broker, Jim. I think we should call him and see if we can get pre-qualified.”

For years we had toyed with the idea of trying to buy a house, but I had been skeptical that we could obtain financing due to my bankruptcy filing in 2005 and other aspects of our credit situation. But an $8000 tax rebate is a big carrot, big enough for me to push aside my doubt and agree to a meeting with Jim. The following week we were sitting across from Jim at his desk. He had run our credit reports, and scrutinized our pay stubs and bank statements.

“According to the numbers I’ve just punched in here, I can comfortably report that your income easily supports a $150,000 mortgage.”

Wait a minute! What? Rewind that a second.

“You mean to tell me,” I countered, “in spite of my bankruptcy and our debt ratio being what it is, you still think we would qualify for $150,000?”

“Well yes,” Jim confirmed. “Your bankruptcy was four years ago. Your credit ratings are well within FHA guidelines, and so is your debt ratio. Your monthly income easily supports the payments on $150,000 given today’s interest rates.”

“Are you surprised, honey?” Shannon asked me.

Indeed I was. Shocked and pleasantly surprised. Thus began the great house hunt of Spring 2009. Jim worked up good faith estimates for closing costs at several price points. We quickly realized that we could not afford a $150,000 mortgage. Lucky for us, Columbus is on the top-ten list of the best-value housing markets in the country. New construction and existing homes in decent shape  are plentiful in the range between $100,000-125,000, our target price range.

Next stops: Realtor.com and Google.

 

—Michael