Archive for Home Buyer Tax Info
Congress To Extend First Time Home Buyer Credit and Give Repeat Buyers A Credit Too!
Posted by: | CommentsIn addition to last week’s passage of a bill to extend through 2010 Freddie Mac, Fannie Mae and FHA loan limits to $729,750, the extension and expansion of the home buyer tax credit is the pending business in the Has passed the Senate.
After a long week of negotiation on the credit, an agreement on the scope of both expansion and extension has been reached. The agreement on the extension and expansion of the credit is as follows:
- Credit available for purchases before May 1, 2010. Prospective purchasers with binding contracts in place as of April 30, 2010 will be allowed an additional 60 days to complete the transaction.
- Credit remains at $8000 for first-time purchasers. No change to definition of first-time purchaser.
- New $6500 tax credit for repeat buyers who purchase between December 1, 2009 and May 1, 2010. Repeat buyers must have lived in their homes consecutively for 5 of the previous 8 years.
- Income limits are expanded to $125,000 on a single return and $225,000 on a joint return. Current law $20,000 phase-out retained.
- New anti-fraud limitations are imposed.
The White House has indicated that President Obama will sign the has signed the legislation into law.
If you’re a first time homebuyer in New York City and you can close on an apartment by December 1st 2009, you may be wondering how you can leverage the $8,000 tax credit to buy your first condo or co-op. The question then comes to mind, “How much can I afford or want to spend on my new home?”
The first thing you need to know is that a couple (or two individuals jointly) buying their first home who want to use the Federal Housing Tax Credit can only have an annual combined income of $150,000 or $12,500 per month.
When you apply for a mortgage, the first thing the mortgage broker or lender is will calculate is your debt-to-income ratio. This ratio takes into account your monthly debt including the monthly mortgage payment, maintenance (for co-ops) or common charges and taxes (for condos), student loans, car payments credit card payments etc. They like to see that your total monthly debt expenses do not exceed 40% of your monthly income. If your gross monthly income is $12,500, then your total monthly debt cannot exceed $5,000 (12,500 x 40%).
The calculation above may be adequate to receive financing for a condo purchase, but many coops only will allow your maximum monthly housing expenses (principal and interest payment on the mortgage and maintenance), to be typically 28% of your monthly income (could be 25% or lower for some co-ops, which is the limit set by the co-op board, not the lender).
Using a limit of 28% for housing expenses, a buyer with an income of $12,500 per month would have approximately $3,500 per month to spend on housing expenses.
So depending on the amount you have for a down payment (assume at least 20%), the mortgage rate and other debt, you may be able to spend between $3500 and $5000 per month to for your Manhattan co-op or condo.
You can use this link to StreetEasy.com to adjust the variables and see what’s available for you based on your personal circumstances.
See a video here and read the FAQ here
The Good, the Bad and the Ugly of Using Your 401k to Buy Your First Home
Posted by: | CommentsThe combination of a tumbling stock market, where 401k holders watched the value crumble, and the decline of home prices has made it an attractive time to take the leap into buying a first home. Rather than watch their stocks, bonds, mutual funds and other investments continue to lose value, many first time buyers have cashed out all or some of their 401k and used it toward the down payment or for covering other costs.
Like any major financial decision, using a 401k to buy your first home has some good, some bad and some ugly things you need to be aware of.
The Good
• Great deals on purchases. The good news is that real estate prices have fallen to the point where you can find better deals and there’s a wider selection than in the recent past. It may even mean that you can buy a co-op or condo that you were never able to afford before the decrease in value.
• Upside appreciation. This also means that when real estate values return to normal that you’ll probably profit when you sell (assuming you sell for more than you paid and what you owe on the mortgage).
The Bad
• Loss of income. When you decrease the value of your 401k account, the lower principal balance means you have less money from which to earn interest, dividends and appreciation.
• Depletion of nest egg. Since the purpose of a 401k is to provide income for your retirement years, when you spend this money now, it’s not going to be available for tomorrow.
The Ugly
• Tax penalties. The ugliest part of early withdrawal from a 401k is that good old Uncle Sam hits you with tax penalties can really hurt—and it diminishes the amount you wind up with when you make a withdrawal.
• Fees. The investment firm that manages your 401k may also charge you a penalty or fee for liquidating the investments early, which may leave you with even less money than you anticipated.