Five Mistakes You Shouldn't Make As a First Time Homebuyer

Buying a first home can be a daunting experience. Here are five common and costly mistakes that novice home buyers make:

1. Ignoring the costs of having a low credit score. Lower-score borrowers pay thousands of dollars in increased interest rates over the life of the loan.
2. Muddying the waters by shopping for other things before closing. Lenders continue to check credit scores right up until the time of closing. Too much shopping could cause the lender to take back the loan.
3. Scrimping on an inspection. Being surprised by the need for expensive repairs can be financially devastating.
4. Buying without contingencies. Buyers should give themselves an out if the inspection turns up problems or the bank raises the interest rates.
5. No money for insurance. Insurance can be surprisingly pricey. Buyers who don't budget for it can face a nasty surprise.

Source: CNNMoney.com, Les Christie (04/19/2010)

 

Mitra Karimi

mitra.karimi@crestico.com

http://www.crestico.com

New Home / First Time Buyer Credits in California

The New Home / First-Time Buyer Credits are available only for purchases that close escrow on or after May 1, 2010.

Applying for the 2010 New Home/First-Time Buyer tax credits: Applications must be faxed after escrow closes. The new application will be available by May 1, 2010. We will deny the application if the 2009 form is used or if we receive the 2010 application before May 1, 2010.

General Information: These tax credits are available for taxpayers who purchase a qualified principal residence on or after May 1, 2010, and before January 1, 2011. Additionally, these tax credits are available for taxpayers who purchase a qualified principal residence on or after December 31, 2010, and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010. The purchase date is defined as the date escrow closes. Taxpayers may apply for the tax credits if they have entered into a contract before May 1, 2010, as long as escrow closes on or after May 1, 2010.

These tax credits are limited to the lesser of 5 percent of the purchase price or $10,000 for a qualified principal residence. Taxpayers must apply the total tax credit in equal amounts over 3 successive tax years (maximum of $3,333 per year) beginning with the tax year in which the home is purchased. The tax credits cannot reduce regular tax below tentative minimum tax (TMT). The tax credits are nonrefundable and unused credits cannot be carried over.

The total amount of allocated tax credit for all taxpayers may not exceed $100 million for the New Home Credit and $100 million for the First-Time Buyer Credit. However, since many taxpayers will not be able to utilize the entire tax credit, the legislation specifies that the $100 million cap for the New Home Credit will be reduced by 70 percent of the tax credit allocated to each buyer and the $100 million cap for the First-Time Buyer Credit will be reduced by 57 percent of the tax credit allocated to each buyer. For example, if a taxpayer is allocated $10,000 for the New Home Credit, the $100 million cap for the New Home Credit will only be reduced by $7,000. If a taxpayer is allocated $10,000 for the First-Time Buyer Credit, the $100 million cap for the First-Time Buyer Credit will only be reduced by $5,700. The 70 and 57 percent reductions do not impact the amount that can be claimed by the taxpayer.

Only one tax credit is allowed per taxpayer, and they will be allocated on a first come, first serve basis. If a taxpayer qualifies for both tax credits, the law specifies that we will allocate the amount under the New Home Credit.

Taxpayers will not be eligible for either tax credit if any of the following apply:

- The taxpayer was allowed a 2009 New Home Credit.

- The taxpayer is under 18 years old. (A taxpayer who is married as of the date of purchase will be considered to be 18 if the spouse/registered domestic partner (RDP) of the taxpayer is 18 or older on the date of purchase.)

- The taxpayer or the taxpayer's spouse/RDP is related to the seller.

- The taxpayer qualifies as a dependent of any other taxpayer for the tax year of the purchase.

New Home Credit: A qualified principal residence, for purposes of the New Home Credit, must:

- Be a single family residence, either detached or attached. This can be a single family residence, a condominium, a unit in a cooperative project, a house boat, a manufactured home, or a mobile home. A home constructed by the taxpayer is not eligible since the home has not been "purchased."

- Have never been occupied. Sellers must certify that the home has never been occupied in order for a taxpayer to receive an allocation of the credit.

- Be eligible for the California property tax homeowner's exemption.

- Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.

Tax credit allocation:

A Certificate of Allocation will not be issued if:

The seller does not certify the home has never been occupied.

- The Franchise Tax Board does not receive the application and a copy of the properly executed settlement statement within 2 weeks (14 calendar days) after the close of escrow.

- The Franchise Tax Board receives the application or reservation request after the total tax credits available have been allocated.

First-Time Buyer Credit: A qualified principal residence, for purposes of the First-Time Buyer Credit, must:

- Be a single family residence, either detached or attached. This can be a single family residence, a condominium, a unit in a cooperative project, a house boat, a manufactured home, or a mobile home. A home constructed by the taxpayer is not eligible since the home has not been "purchased."

- Be eligible for the California property tax homeowner's exemption.

- Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.

A first-time buyer is any individual (and the individual's spouse/RDP, if married on the date of purchase) who did not have an ownership interest in a principal residence, either in or out of California, during the preceding 3 year period ending on the date of the purchase of the qualified principal residence. If the buyer is married on the date of purchase and either the buyer or the buyer's spouse/RDP had an ownership interest in a principal residence during the preceding 3 year period, the buyer does not qualify for the First-Time Buyer Credit even if the spouse/RDP is not going to be on title.

Tax credit allocation:

A Certificate of Allocation will not be issued if:

- The Franchise Tax Board does not receive the application and a copy of the properly executed settlement statement within 2 weeks (14 calendar days) after the close of escrow.

- The Franchise Tax Board receives the application after the total tax credits available have been allocated.

Applications: The Franchise Tax Board will accept applications by fax only beginning May 1, 2010. Do not use the 2009 application.

Reservations: Taxpayers who qualify for the New Home Credit may, but are not required to, reserve a tax credit prior to the close of escrow. Reservations will become important as we near the $100 million cap for homes that may not close escrow before the cap is reached, as a reservation will "hold the taxpayer's place in line" until 2 weeks after escrow closes. To reserve a tax credit, the taxpayer and seller need to complete, sign, and fax to us a reservation request to certify that they have entered into an enforceable contract on or after May 1, 2010, and on or before December 31, 2010. A copy of the signed contract must be included with the reservation request. Taxpayers who reserve a tax credit still need to fax an application and a copy of the settlement statement within 2 weeks after the close of escrow. Taxpayers may not reserve a tax credit if the contract was entered into before May 1, 2010. We will post the reservation form and details about the process by May 1, 2010.

If you are only applying for the First-Time Buyer Credit, you will not be able to reserve the tax credit before escrow closes.

Claiming the tax credit:

The taxpayer must receive a Certificate of Allocation from the Franchise Tax Board to claim the tax credit on their California personal income tax return. The Certificate of Allocation will state the maximum amount the taxpayer can claim listed by tax year.

The taxpayer should refer to the 2010 New Home / First-Time Buyer Credit Publication for instructions on claiming the tax credit (the publication will be available by December, 2010).

Special rules apply to married/RDP taxpayers filing separately, in which case each spouse/RDP is entitled to one-half of the tax credit, even if their ownership percentages are not equal. For 2 or more taxpayers who are not married/RDP, the tax credit amount will have already been allocated to each taxpayer occupying the residence on their respective tax credit allocation letter.

If the available tax credit exceeds the current year net tax, the unused tax credit may not be carried over to the following tax year.

The tax credit may not reduce regular tax below TMT.

The tax credit is not refundable.

Any disallowance of the tax credit may not be protested or appealed.

 

Mitra Karimi

Crestico, Inc.

mitra.karimi@crestico.com

http://www.crestico.com

What The Purchase Offer Contains

Lately, I have been getting asked many questions about what it takes to buy a home and how to start the process.  So, today, I thought I would write on what exactly an "offer" is comprised of.  This year, the California Realtor Association has re-vamped the "offer" form, also know as the "Residential Purchase Agreement."  I thought it would be particularly helpful to go over some of the key components and aspects an offer to purchase a property.

In real estate, oral contracts are not legally binding. If you wish to bid on a property, you must make a formal, written offer or proposal.  Your Crestico sales professional is experienced with the offer/counter-offer process, and will know which of a variety of standard proposal forms are suitable for your area. Once written, your Sales Professional will present your offer to the seller. (In some cases, this is all handled by the respective parties' lawyers.) We have provided the basic information needed during this critical phase here.

What the Offer Contains - Your written proposal may include, but is not limited to, the property's address and legal description, sale price, terms, earnest money, expiration date of the offer, prorating (adjustments) of utility bills, real estate taxes, insurance, contingencies, repairs and any other terms that you deem important.

Earnest money - Earnest money is a deposit given when making an offer. It demonstrates sincerity—"earnestness"—on the buyer's part. If the offer is accepted, it becomes part of the down payment. If not, it is usually returned.

Contingencies - A contingency means that the purchase is subject to certain events occurring, such as the buyer's loan being approved, or the property passing the termite inspection. If the contingencies aren't met, the offer is void.

Response - If the seller accepts the offer, and signs an acceptance, you have a deal. If not, you are free to walk away, and cannot be held liable for the contract. The seller may make you a counter-offer, and you are free to accept it or not, or make your own counter-offer. Only when an offer is accepted and signed by both parties is the contract binding.

Withdrawing an offer - In most cases you can withdraw your offer up to the point when it is accepted. If you do wish to cancel the offer, it's a good idea to consult with a real estate lawyer. You don't want to lose your deposit, or be sued for damages perceived by the seller.

 

Mitra Karimi
Crestico, Inc.
http://www.crestico.com
mitra.karimi@crestico.com

Distressed Homeowners: Fannie Mae is Offering Help!

Fannie Mae is beginning to implement some changes to its policies regarding distressed homeowners. The institution is now moving towards helping currently distressed homeowners maintain their ability to own a home, by giving them second chances. Intended to support the housing market and incentivize homeowner cooperation with lenders, Fannie Mae will now offer homeowners who grant a "deed-in-lieu of foreclosure" a shorter waiting period before they will be able to qualify for a new Fannie Mae mortgage.

Historically, this waiting period has been at least four years, which is to say that if you, as a Fannie Mae borrower lost your home to foreclosure, you would not be eligibly for another Fannie Mae mortgage for at least four years from the date of foreclosure. Now, however, this waiting period is being reduced by half.

With the new two-year waiting period, homeowners will be required to put at least twenty percent of the purchase price as a down payment, however. This new policy will begin to take effect on July 1 of this year. Fannie Mae is hoping that offering such incentives to these homeowners will be helpful to the country's recovery as well as setting forth a policy that homeowners who work with lenders are less risky to deal with and better than homeowners who simply abandon their mortgage obligations or fight the lenders for short sales.

Fannie Mae's policy may be, in part, a reaction to Obama's HAFA program which is aimed at homeowners who do not qualify for modifications and other foreclosure alternatives. Industry expert are predicting a dramatic increase in "pre-foreclosure" activities this year and next year, which Fannie Mae is hoping to alleviate through its new policy.

 

 

Mitra Karimi

Crestico, Inc.

http://www.crestico.com

California Homeowners Considering Short Sales: Good News Regarding Tax Liability on Forgiven Debt

California state income tax on forgiven debt resulting from a short sale, foreclosure, or loan modification will no longer be imposed on homeowners in California. Senate Bill 401 makes California's tax treatment of mortgage debt relief income the same as federal law. Be advised, however, that only the debt stemming from the loan secured by a "qualified principal residence," will be exempt from both federal and state income tax consequences. While the federal exemption amount is up to $2 million, the California exemption is up to $800,000 and forgiven debt up to $500,000.

Now, I know you're thinking … what is a "Qualified principal residence." This means that only the debt incurred in connection with acquiring, constructing, or substantially improving a principal residence is the subject of this legislation. Principal residences are where you actually reside, receive mail and inhabit for all intents and purposes. This new debt forgiveness exemption will include first and second trust deeds, as well as debt incurred in connection with a refinance loan to the extent that that fund from said loan were used to payoff a previous loan that would have also qualified under Senate Bill 401's guidelines.

These "tax breaks" are applicable to debts that are discharged from 2009 through 2012. Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment. Taxpayers who do not qualify for the exemptions (for example, those homeowners with second or third homes and/or rental property or properties) may potentially also claim an exemption, through other provisions in the law, however.

A very important thing to note is that taxpayers who are bankrupt are exempt from debt relief income tax. This means, that they have no liability. Also, taxpayers who are insolvent and have no assets may also claim exemption from debt relief income tax to the extent their current liabilities exceed current assets.

For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board's Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service's Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage. The full text of Senate Bill 401 is available at www.leginfo.ca.gov. Also, remember to consult with an attorney before taking any steps that may impact your tax and/or legal liability.