No Money Down OR & CA

Since you don’t need a down payment with the USDA Rural Guarantee Home Loan, why don’t you use the $7,500 tax credit to fix the things you would like to in your new home? The $7,500 tax credit creates a lot of interested in program, especially now as there are some major changes in talks that are included in both the House and Senate version of the Stimulus Bill. First of all, let me stress that there currently are limitations and qualification for this program. The most stringent is that it is available for homes purchased between April 9 of last year (2008) and July 1 of this year (2009). If you miss that window, you miss the tax credit. There is talk extending this window as part of the Stimulus Bill, but nothing has happened yet. There is also talk of expanding the credit to $15,000.

Next, the credit is currently only available to single taxpayers with an Adjusted Gross Income (AGI) of $75,000 or less or married taxpayers with a AGI or $150,000 or less to get the full credit. Lesser credits are available for those making more than the limits listed here. This also might change.

Additionally, this is not a gift from the government. It is a tax credit that has to be paid back. (Again, this could change.) It is, in essence, a interest-free loan. You are required to pay it back (with your taxes) at $500 per year starting with the tax return of the year after you receive the credit. So, if you take the credit for 2008, it starts being payable with your 2010 taxes. I do not give tax advice, but my understanding of the program is that if you purchase a home prior to April 15, 2009, you can take the credit on your 2008 or 2009 taxes, your choice. Check with a tax professional for your personal situation.

It is paid over a 15 year period. Also, if you sell the home in this time period and netted less than what was still owing, that amount would be forgiven.

Remember, politicians wrote this. That means it takes a lot to understand what they did. When working on the tax ramification, please seek advise from a tax professional on your personal situation. I am not a tax professional and do not intend to give any tax advice. I do believe you will find that your tax obligation as a home owner should more than generate deductions to pay for the $500. Again, this is my belief, not tax advice.

You also must not have had ownership in a primary residence for the past three years to qualify as a first time home buyer.

The next more asked question is: ‘How can I use the tax credit for my down payment?” Good question. Since you will be using the USDA program, you won’t need a down payment but you might need closing costs. So, if you need closing costs or you chose another program, here are some options:

1. Borrow from your 401k. I know that most people have an aversion to taking money from their 401k since that is their retirement nest egg. But, by using the 401k for the down payment, the money (again check with a tax professional) can be borrowed or even withdrawn and then paid back with no penalties.
2. Borrow the money from a commercial lending institution. You may belong to a credit union that would be more than happy to lend you the money in this instance. Use your car or boat or the like for security if necessary.
3. Get a gift or borrow from a relative. For it to be a loan, it must be a close relative, parents, children or the like. A gift can come from any relative or close family friend.
4. Sell a kidney….no, I don’t think that would be a really good idea. I don’t think you can get that back. But, maybe you have a collection of baseball cards, or silver dollars you can use for security to get the down payment.

In actuality, the tax credit is 10% of the sales price of the home up to $7,500. So, if you found a home with a sale price less than $75,000, your credit would be less. Let me know if you find one of these, OK?

I hope this information helps you understand this particular portion of the Housing Act of 2008. There is so much more in the Act that will have effect on us down the road. This one is a good thing, I think.

Now, just one more thing. There are rumors and speculation that this $7,500 tax credit can be used for down payment and/or closing costs. That is not true. This is not money in hand. That means you cannot use it “CAUSE YOU AIN’T GOT IT YET!” Anytime you are working on a loan, one of the primary things we do is verify and track the money. Where did it come from and how long has it been there?

I am always available to discuss your personal circumstances. Please read my post about the 3Cs of loan underwriting on Eugene Loan Guy. The coupling of this program with lower prices and lower interest rates should make this the proper time for you to consider purchasing a home. Call me or fill out an application on line. The application button is to your left.