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MYTAXCREDITNOW.

COM
FOR FIRST-TIME HOME
BUYERS IN 2009

This Special Report was provided by Al Chapman a real


estate investor based in Chattanooga, TN. He specializes in
private investment property opportunities and quality houses
to first time home buyers. He helps locate financing for
his home buyers and investors he mentors. He can help you
claim your $8000 tax credit so you can use the credit to buy
a remodeled house.
Call (1-800-385-1665) to start the process of owning your
own home. It can take a little as 2 weeks to close.

Thank You.

Al Chapman is an entrepreneur and real estate investor. He attended


Colgate University where he started his first company using $2,500 of
summer earning. As CEO, the company grew to 250,000 members in 71
countries.
Mr. Chapman started REIC, a real estate investment company. Before
selling the business, the company bought and sold over 150 houses. He
was the founding Director of the Wealth Creation Program, a nonprofit
initiative that was a partnership between SunTrust and the Urban
League. He has bought and sold 3 franchise businesses. He now speaks
and mentors real estate investors and entrepreneurs’.

WASHINGTON — In 2008, Congress enacted a $7500 tax credit designed to be


an incentive for first time home buyers to purchase a home. The credit was
designed as a mechanism to decrease the over homes for sale. For 2009,
Congress has increased the credit to $8000 and made several additional
Improvements. This revised $8000 tax credit applies to purchases
December 1, 2009.
1. What’s this new homebuyer tax incentive for 2009
A home that is purchased for $80,000 or more will qualify for the full $8000. If
the price of the house costs less than $80,000, the credit will be 10%.
If an individual purchased a home for $75,000, the credit would then be
$7500. It is available for the purchase of a principal residence on or after
January 1, 2009 and before December 1, 2009.

2. Who is eligible? Only first-time homebuyer


A person is considered a first time buyer if he or she has not had any
ownership interest in a home in the three years previous to the 2009
Purchase date. This is based on the exact day of sale of the person’s prior home
and not the calendar year.

You are not eligible if any of the following: 1. Income exceeds the phase-out
range. Which means joint filers with Modified Adjusted Gross Income (MAGI) of
$170,000 and above and other tax payers “such as single” with MAGI of
$95,000 and above. 2. You buy your home from a close relative. This includes
your spouse, parent, grandparent, child or grandchild and corporations or
partnerships in which you own either directly or indirectly more than 50%
interest. 3. You stop using your home as your main home. 4. You sell
your home before the end of three years. 5. You are a nonresident alien. 6.
Your home is outside the United States 8.You acquire the home by gift or
inheritance.

3. How does a tax credit work? Tax credits are so much better than Tax
deductions. Every dollar of a tax credit reduces income taxes by one dollar. A
tax deduction reduces the amount of taxable income that is subject to
taxation. Deductions and Credits are both claimed on an individual’s tax
return. This incentive is a tax credit and not a tax deduction. A qualified
purchaser would figure out all the income items and exemptions and make all
the calculations required to figure out his or her total tax due. Then, once the
total tax owed has been calculated, tax credits are applied to reduce the total
tax bill. Before taking any credits on a tax return a person has total tax liability
of $9500, an $8000 credit would wipe out all but $1500 of the tax due. ($9,500
- $8000 = $1500)

4. So what happens if the purchaser is eligible for an $8000 credit but


their entire income tax liability for the year is only $6000? This tax credit
is what’s called “refundable” credit. If the eligible purchaser’s total tax liability
was $6000, the IRS would send the purchaser a check for $2000. The
refundable amount is the difference between $8000 credit amount and the
amount of tax liability. ($8000 - $6000 = $2000) The majority of taxpayers
determine their tax liability by referring to tables that the IRS prepares each
year for individuals. So even if you don’t own any taxes whatsoever, the IRS
would send the home buyer a check.

5. How does withholding affect my tax credit and my refund? There are
many steps in these calculations, but most income tax software programs are
equipped to help you determine.

6. Is there an income restriction? Yes. The restriction is based on the tax


filing status the purchaser claims when filing his or her income tax return.
Individuals filing Form 1040 as Single (or Head of Household) are eligible for
the credit if their income is no more than $75,000. Married couples who file a
Joint return may have income of no more than $150,000.

7. How is my “income” determined? For most individuals, income is defined


and calculated in the same manner as their Adjusted Gross Income (AGI) on
their 1040 income tax return. AGI includes items like wages, salaries, interest
and dividends, pension and retirement earnings, rental income and a host of
other elements. AGI is the final number that appears on the bottom line of the
front page of an IRS Form 1040.

8. What if I worked abroad for part of the year? Some individuals have
earned income and/or receive housing allowances while working outside the
US. Their income will be adjusted to reflect those items to measure Modified
Adjusted Gross Income (MAGI). Their eligibility for the credit will be based on
their MAGI.

9. Do individuals with incomes higher than the $75,000 or $150,000


limits lose all the benefit of the credit? Not always. The credit phases-out
between $75,000 - $95,000 for singles and $150,000 - $170,000
for married filing jointly. The closer a buyer comes to the maximum phase-out
amount, the smaller the credit is going to be. The law provides a formula to
gradually withdraw the credit. Thus, the credit will disappear after an
individual’s income reaches $95,000 (single return) or $170,000 (joint return).

For example: If a married couple had an income of $165,000, their credit


would be reduced by 75% as shown:
Couple’s income $165,000
Income limit 150,000
Excess income $15,000
The excess income amount ($15,000 in this example) is used to form a fraction.
The numerator of the fraction is the excess income amount ($15,000). The
denominator is $20,000 (specified by the statute.
In this example, the disallowed portion of the credit is 75% of $8000, or $6000
($15,000/$20,000 = 75% x $8000 = $6000)
Stated another way, only 25% of the credit amount would be allowed.
In this example, the allowable credit would be $2000 (25% x $8000 = $2000)
10. What’s the definition of “principal residence?” Generally, a principal
residence is the home where an individual spends most of his/her time
(generally defined as more than 50%). It is also defined as “owner-occupied”
housing. The term includes single-family detached housing, condos or co-ops,
townhouses, house trailer, cooperative apartment or any similar type of new or
existing dwelling. Even some houseboats or manufactured homes count as
principal residences.

11. Are there restrictions on the location of the property? Yes. The home
must be located in the United States. Property located outside the US is not
eligible for the credit.

12. Are there restrictions related to the financing for the mortgage on the
property? In 2009, most financing arrangements are acceptable and will not
affect eligibility for the credit. Congress eliminated the financing restriction that
applied in 2008. (In 2008, purchasers were ineligible for the $7500 credit if the
financing was obtained by means of mortgage revenue bonds.) Now, mortgage-
revenue bond financing will not disqualify an otherwise-eligible purchaser.
(Mortgage revenue bonds are tax-exempt bonds issued by a state housing
agency. Proceeds from the bonds must be used for below market loans to
qualified buyers.)

13. Do I have to repay the 2009 tax credit? NO. There is no repayment for
2009 tax credits.

14. Do 2008 purchasers still have to repay their tax credit? YES. The
$7500 credit in 2008 was more like an interest-free loan. All eligible purchasers
who claimed the 2008 credit will still be required to repay it over 15 years,
starting with their 2010 tax return.

15. How do I apply for the credit? There is no pre-purchase authorization,


application or similar approval process. All eligible purchasers simply claim the
credit on their IRS Form 1040 tax return. The credit will be reflected on a new
Form 5405 that will be attached to the 1040. Form 5405 and instructions can
be found at the IRS site at:
http://www.irs.gov/pub/irs-pdf/f5405.pdf

16. So I can’t use the credit amount as part of my down payment? No.
Congress tried hard to devise a mechanism that would make the funds
available for closing costs, but found that pre-funding would require
cumbersome processes that would, in effect, bring the IRS into the purchase
and settlement phase
of the transaction.
17. So there’s no way to get any cash flow benefits before I file my tax
return? Yes, there is. Any first-time homebuyers who believe they are eligible
for all or part of the credit can modify their income tax withholding (through
their employers) or adjust their quarterly estimated tax payments. Individuals
subject to income tax withholding would get an IRS Form W-4 from their
employer, follow the instructions on the provided and give the completed Form
W-4 back to the employer. In many cases their withholding would decrease and
their take-home pay would increase. Those who make estimated tax payments
would make similar adjustments.

18. What if I purchase later this year but can’t get to settlement before
December 1? The credit is available for purchases before December 1, 2009. A
home is considered as “purchased” when all events have occurred that transfer
the title from the seller to the new purchaser. Thus, closings must occur before
December 1, 2009 for purchases to be eligible for the credit.

19. I haven’t even filed my 2008 tax return yet. If I buy in 2009, do I have
to wait until next year to get the benefit of the credit? You’ll have a helpful
choice that might speed up the process. Eligible homebuyers who make their
purchase between January 1, 2009 and December 1, 2009 can treat the
purchase as if it had occurred on December 31, 2008. Thus, they can claim the
credit on their 2008 tax return that is due on April 15, 2009. They actually
have three filing options.

(1) If they purchase between January 1, 2009 and April 15, 2009, they can
claim the $8000 credit on the
2008 return due on April 15.
(2) They can extend their 2008 income-tax filing until as late as October 15,
2009.
(The IRS grants automatic extensions, but the taxpayer must file for the
extension.
See www.irs.gov for instructions on how to obtain an extension.)
(3) If they have filed their 2008 return before they purchase the home, they
may file an amended 2008 tax return on Form 1040X. (Form 1040X is available
at www.irs.gov) Of course, 2009 purchasers will always have the option of
claiming the credit for the 2009 purchase on their 2009 return. Their 2009 tax
return is due on April 15, 2010.

20. I purchased my home in early 2009 before the stimulus bill was
enacted. I claimed a $7500 tax credit on my 2008 return as prior law had
permitted. Am I restricted to just a $7500 credit? No, you would qualify for
the $8000 credit. Eligible purchasers who have already claimed the $7500
credit on a 2008 return for a 2009 purchase may file an amended return (IRS
Form 1040X) for the 2008 tax year. This amended return will enable them to
obtain the additional $500 credit amount.
21. If I claim my 2009 $8000 credit on my 2008 tax return, will I have to
repay the credit just as the 2008 credits are repaid? No. Congress
anticipated this confusion and has made specific provision so that there would
be no repayment of 2009 credits that are claimed on 2008 returns.

22. I made an eligible purchase of a principal residence in May 2008 and


claimed the $7500 credit on my 2008 tax return. My brother, who has
never owned a home, wishes to purchase a partial interest in the home
this spring and move in. Will he qualify for the $8000 credit, as well? No.
Any purchase of a principal residence (or interest in a principal residence) from
a related party such as a sibling, parent, grandparent, aunt or uncle is
ineligible for the tax credit. Since you and your brother are related in this way,
he cannot qualify for the credit on any portion of the home that he purchases
from you, even if he is a first-time homebuyer.

23. I live in the District of Columbia. If I qualify as a first-time


homebuyer, can I use both the $5000 DC credit and the $8000 credit? No,
double dipping is not allowed. You would be eligible for only the $8000 credit.
This will be an advantage because of the higher credit amount, plus the
eligibility requirements for the $8000 credit are somewhat more easily satisfied
than the DC credit.

24. I know there is no repayment requirement for the $8000 credit. Will I
ever have to repay any of the credit back to the government? One
situation does require a recapture payment back to the government.
If you claim the credit but then sell the property within 3 years of the date of
purchase, you are required to pay back the full amount of any credit, including
any refund you received from it. A few exceptions apply.
Note that this same 3-year recapture rule applies, as well, to the $7500 credit
available for 2008. This provision is designed as an anti-flipping rule.

25. What if I die or get divorced or my property is ruined in a natural


disaster within the 3 years? The repayment rules are eased for many
circumstances. If the homeowner who used the credit dies within the
first three years of ownership, there is no recapture. Special rules make
adjustments for people who sell homes as part of a divorce settlement, as well.
Similarly, adjustments are made in the case of a home that
is part of an involuntary conversion (property is destroyed in a natural disaster
or subject to condemnation by eminent domain by an authorized agency)
within the first three years

26. I have a home under construction. Am I eligible for the credit? Yes, so
long as you actually occupy the home before December 1, 2009.
27. For the purpose of calculating the credit amount, what is considered
the purchase price? The purchase price is the adjusted basis of your home on
the date you purchased it. This includes certain settlement or closing costs
(such as legal fees and recording fees) and your down payment and debt (such
as a first or second mortgage or notes you gave to the seller in payment for the
home). If you build, or contract to build, a new home, your purchase price can
include costs of construction.

***28. 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 home-ownership 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.

***29. 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 such as foreign income, foreign-housing deductions, student-loan
deductions, IRA-contribution deductions and deductions for higher-education
costs.

***30. 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 phase-out limits.

***31. 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.

***32. 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.

***33. 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.

WITHHOLDING EXAMPLES:
Situation 1: Jamie plans her withholding so that her withholding is as close as
possible to what she anticipates as her income tax liability for the year. When
she fills out her 1040, her liability is $6000. She
has had $6000 withheld from her paycheck. She also qualifies for the $8000
homebuyer credit.
Result: Jamie’s’ withholding satisfies her tax liability and reduces it to zero.
She will receive a refund of the full $8000.
Situation 2: Norris and Nina file a joint return. Nick is self-employed and
makes estimated payments; Nora has taxes withheld from her salary. When
they compute their taxes, their combined withholding and estimated tax
payments are $11,000. Their income tax liability is $9800. They also qualified
as first-time homebuyers and are eligible for the $8000 refundable tax credit.
Result: Ordinarily, their combined estimated tax payments and withholding
would make them eligible for a refund of $1200 ($11,000 - $9800 = $1200).
Because they are eligible for the refundable tax credit as well, they will receive
a refund of $9200 ($1200 income tax refund + $8000 refundable tax credit =
$9200).
Situation 3: Tim and Jillian both have income taxes withheld from their
salaries and file a joint return. When they file their income tax return, their
combined withholding is $5000. However, their total tax liability is $7200,
generating an additional income tax liability of $2200 ($7200 - $5000). They
also qualify for the $8000 first-time homebuyer tax credit.
Result: Tim and Jillian have been under-withheld by $2200. Ordinarily, they
would be required to pay the additional $2200 they owe (plus any applicable
interest and penalties). Because they are eligible for the refundable homebuyer
tax credit, the credit will cover the $2200 additional liability. In addition, they
will receive an income tax refund of $5800 ($8000 - $2200 = $5800). If they
owed penalties and/or interest, that amount would reduce the refund.

(This is information is accurate to the best of our research and interpretation


based on information available as of February 25, 2009. As with any tax law
change, check with a tax advisor if there are any questions regarding using this
provision)

Success Strategies To Maximize the Benefit With the First-Time


Homebuyers Credit

Success Strategy #1: Modify Withholding at Work. Any first-time homebuyers


who believe they are eligible for all or part of the credit can modify their income
tax withholding (through their employers) or adjust their quarterly estimated
tax payments. Individuals subject to income tax withholding would get an IRS
Form W-4 from their employer, follow the instructions on the schedules
provided and give the completed Form W-4 back to the employer. In many
cases their withholding would decrease and their take-home pay would
increase. Those who make estimated tax payments would make similar
adjustments.
Success Strategy #2: File An Amended 2008 Tax Return. Eligible homebuyers
who make their purchase between January 1, 2009 and December 1, 2009 can
treat the purchase as if it had occurred on December 31, 2008. Thus, they can
claim the credit on their 2008 tax return that is due on April 15, 2009 or file an
amended 2008 Tax Return.
Success Strategy #3: Create a Short Term Note When Buying. When
negotiating the purchase, ask the seller to create a short term seller financed
note to be repaid when the refund from the tax credit is paid to the new
homebuyer. Or just borrow the anticipated Tax Credit amount from a third
party or loan company.

FHA Loans Are For Everyone, Not Just First Time Homebuyers!
I wanted to clarify some Misinformation out there about FHA Home Loans. For
some reason many people think FHA Loans are only for first time home buyers.
I don’t know where this comes from, but it is totally false. Sometimes the media
makes a mistake and falsely writes that FHA Loans are only for first time home
buyers. FHA Loans can be used by ANYONE, Even if you have many other
properties. On that note, here is a reminder of some of the highlights of the
FHA Home Loan:
• Only 3.5% down payment is required. And this can be a gift from a relative
• FHA loans are not credit score driven. You can get the best 30 year fixed rates
available with an FHA Loan even if your credit score is not perfect.
• You can only get an FHA Loan on your primary residence
• You can only have one FHA Loan at a time (unless under special
circumstance you can have more than one)
• FHA Loans allow non-occupying co-signers to help you qualify
• Many places in California you can get an FHA Loan up to $625,000 (that will
likely go back up to $729,000 with the new Government stimulus bill)
• Interest rates on FHA Loans just as good as conventional interest rates
With the combination of low rates and prices that have fallen by 50% in some
areas of California, you can put 3.5% and get an FHA Loan to buy a house and
have the payment be very close or even less than rent:
$200,000 house total payment:
• Mortgage Payment: $1,052
• Property taxes: $187
• Homeowners insurance: $50
• Mortgage insurance: $88 (drops off after 5 yrs and loan 80% of house value)
• Total payment: $1,377
$250,000 house total payment:
• Mortgage Payment: $1,315
• Property taxes: $234
• Homeowners insurance: $50
• Mortgage insurance: $110 (drops off after 5 yrs and loan 80% of house value)
• Total payment: $1,709
$300,000 house total payment:
• Mortgage Payment: $1,578
• Property taxes: $281
• Homeowners insurance: $50
• Mortgage insurance: $132 (drops off after 5 yrs and loan 80% of house value)
• Total payment:$2,041
Don’t forget to also factor in the tax advantages of home ownership. You are
allowed to write off the mortgage interest, property taxes and mortgage
insurance. Those are write-offs you do not get when renting. That can amount
to taking home a few hundred more per month with your paycheck that gets
paid out in income tax when you rent.
So once again, FHA loans are not just for first time home buyers, they are for
everyone.

Pay Your FHA Loan off Early & Save $100,000’s in Interest
It can be very, very financially intelligent to add a little extra every month to
your minimum mortgage payment to pay off your FHA loan (or any other
mortgage loan) early. Some benefits of adding extra payments:
• You can look at it as investing that extra cash. If you have a 5.5% interest
rate on your loan, every extra dollar you pay above your minimum monthly
payment is earning you 5.5%.
• The earlier you pay off your mortgage, the less interest you pay over the life of
the FHA loan
• Once you pay off your mortgage, you will only have property taxes (and an
HOA fee if you are in a condo) as your total housing expense. This can provide
great security to a homeowner who is retiring on a limited income. You will also
have the added security of having all the equity in your house as part of your
personal wealth. You can have great comfort knowing you can retire in a home
that is owned by you free and clear with a very small housing payment.

~The following are some examples of how quickly you would pay off your FHA
mortgage if you add extra to the payment every month and what you would
save in interest over the life of the FHA loan.

Example 1: $200,000 loan balance with a 30 year fixed 5.5% interest rates and
minimum payment of
$1,135/mo
Extra Payment Loan balance after 5 yrs Loan balance after 10 yrs Loan balance
after 15 yrs
$0 $184,921 $165,081 $138,978
$100 $178,032 $149,130 $111,104
$200 $171,144 $133,180 $83,229
$300 $164,256 $117,229 $55,355
$500 $150,480 $85,327 $0

So if you added $500 extra payment to your mortgage you would pay it off
totally in 15 years! Paying your loan off in 15 years would save you $114,000
in interest vs. if you did not pay any extra and just made the minimum
payment and paid the loan off in 30 years.
For all your FHA Financing needs Contact www.usahomeloansonline.com 1888
6198087

Example 2: $350,000 loan balance with a 30 year fixed 5.5% interest rates and
minimum payment of $1,987/mo
Extra Payment Loan balance after 5 yrs Loan balance after 10 yrs Loan balance
after 15 yrs
$0 $323,611 $288,892 $243,211
$100 $316,723 $272,941 $215,337
$200 $309,835 $256,990 $187,462
$300 $302,947 $241,039 $159,587
$500 $289,171 $209,138 $103,838
If you added $500/mo to the payment you would save $152,000 interest and
pay the loan off totally in 19 years vs. 30 years. I hope these examples open
your mind to how much interest you can save, and how much faster you can
have your mortgage totally paid off, by making extra payments every month on
top of your minimum monthly mortgage payment. Please call me or email me if
you have any additional questions about purchasing a home or refinancing
with an FHA mortgage or any other type of home mortgage.

Big Tax Advantages to Buying vs. Renting


The U.S. Government wants to encourage Americans to be homeowners. A big
part of its encouragement is in the form of a very generous income tax write-off
to Americans who own their own homes. Many people who are renters overlook
this big advantage of home ownership and don’t realize they would pay
considerably less federal income taxes if they purchased a house vs. renting.
When you buy a home with a FHA loan (or any other type of home loan) you
are allowed to write-off the mortgage interest of the FHA loan and your property
taxes. This can result in the largest income tax write off most people will have
their entire lives. When you are renting, you do not have this income tax write
off, and much more of your paycheck is not going to you, but going to the
Federal Government in the form of income taxes.
A very crude way to estimate how much you would save with the income tax
write-off you receive when you purchase a home is to estimate the yearly
mortgage interest you pay with the FHA loan + property taxes and then
multiple that by your federal income tax rate. So let’s say you have a $300,000
mortgage at 5% and your property taxes are $4,000 per year.
• $300,000 mortgage at 5% = $15,000 in mortgage interest per year
• $4,000 property taxes per year
• So you take $15,000 + $4,000 = $19,000 as your total income tax write-off
• Multiply $19,000 X .30 (30%) Fed tax rate=$5,700 per year in income tax
savings ….so you are saving $5,700 a year buying vs. renting! Divide that by 12
and that is $475/mo in income tax savings. You could look at it this way, a
$1,525/mo rent payment would be equivalent to $2,000 house payment.
Because when you rent you have no income tax write-offs if you are salaried, so
you are paying $475/mo more in federal taxes than if you were a homeowner.
After you buy a house, if you are paid W-2, you can talk to your HR Dept. and
change your deductions on your W-4 and have less federal taxes taken out of
your paycheck, so you will take more home every month.
The tax advantage is a major reason over the long haul why homeowners build
more wealth than renters.

Most people who are renters never have a big enough deduction to make it past
the standard deduction and therefore pay the maximum in federal income
taxes. There are also additional items that you can write-off your income taxes
on the year the you purchase. The biggest incentive is the special $7,500 tax
credit that is being offered by the U.S. Government for buyers who haven’t
owner in the past 3 years and buy a house by June 2009. This is part of the
Government stimulus package to revive the U.S. Economy. This tax credit
allows you to 100% wipe away up to $7,500 in federal income taxes. And if you
have less than $7,500 in income taxes, the Government will refund you the
difference. So if you only owe $2,500 in income taxes, the Government will
send you a check for $5,000 for the difference! Additionally, in the year you
purchase you can write off points paid to buy down the mortgage interest rate
and certain closing costs associated with buying. This is can be an additional
substantial income tax savings. You can also write-off the mortgage insurance
associated with an FHA loan. So in summary, if you are renting, you should
take a look at what you are paying in rent and what you would be paying
monthly as your total housing cost if you were to buy with an FHA home loan.
Then subtract the monthly tax savings from the housing payment and see how
it stacks up against your rent payment. And don’t forget when you buy you are
not just paying mortgage interest, you are ALSO paying down the principle of
the FHA loan, to where you will one day own the house free & clear with no
loan on it! When you rent you are only paying your landlord so HIS house (not
yours) will one day be free and clear.

FHA Loans For Self-Employed Borrowers


Prior to 2008, many borrowers that were self-employed could obtain home
loans without having to provide documentation. With the tightening of
mortgage credit that began about 18 months ago, lenders now require self
employed borrowers to provide 2 years of tax returns to document their
income. This article is going to discuss how to plan your 2008 and beyond
taxes to maximize your ability to qualify and what to know about getting
qualified for an FHA loan (or any loan) being self-employed.
When you apply for a home loan, you will have to provide your tax returns in
the following scenarios (this is not an exhaustive list):
• You are a self-employed sole proprietor or business owner (includes LLC’s, S
Corps, partnerships, etc…)
• More than 25% of your income is commission
• You own rental property that you derive income from
• You receive income from dividends, royalties or capital gains that you are
using as income to qualify for a loan
• You have income from partnerships or corporations (where you are less than
25% owner) that you want to use to qualify for a loan
• You receive 1099 income that you want to use to qualify
The underwriter will examine your tax returns to determine your income.
Generally they will average your net income from the last 2 years to calculate
your qualifying income. For example, if you get a home loan in 2009, the
underwriter will average your 2007 and 2008 income from your tax returns
and that will be the income used to qualify. One common problem here is that
many business owners have many business expenses that they write-off
bringing their taxable income down to a very small amount that will not qualify
them for a home loan. And the underwriter will only count your net income
after most of your business expenses (there are some expenses that you
can add back to your income that I will discuss later). So since many business
owner write-off most of their income, they are having a lot of problems
qualifying for home loans right now.
There are expenses that underwriters will add back in when determining your
income off of your tax returns. Here are the most common:
• Depreciation
• Depletion (this is not a common write-off and most will not have this)
• Business use of home (such as a home office)
• Casualty losses dues to theft, fire or natural disasters
• Loss carryovers from prior years (since the loss was in a prior year, it will not
be counted against your qualifying income)
• Business vehicle mileage
• One-time extraordinary expenses
Since these expenses can be added back, it is a good strategy to maximize
these deductions on your 2008 taxes if you plan to buy a home in 2009. Make
sure before completing your 2008 tax returns you talk to your CPA or tax
preparer and explain that you would like to qualify for a home loan to buy a
house and you would like to maximize your net income. Also, mention the
above expenses that can be added back in to your qualifying income to your
CPA and see if you can maximize these deductions.
Additionally, FHA loans allow co-borrowers and even non-occupying co-
borrowers. So another solution for self-employed borrowers to qualify for a
home loan is to find a co-borrower who can show the required income to help
you qualify. If you have further questions or would like to be pre-approved for a
home loan, please contact me as I would be delighted to help. And please
browse the other articles on www.socalfhahomeloans.com for more information
about FHA loans.

FHA Streamline VS Traditional FHA Loan


Mortgage refinancing may be in the tune of a bailout that bankers are not
really piqued on doing. Since refinancing a rather poor mortgage is the next
best thing to financially starting anew, there can be good and bad indications
of its notion. Good in a way that you are willing to face your mortgage duties,
and bad means that there sticks the basic idea of payment defaults. While
refinancing can be a prickly exercise, FHA Refinance Mortgages give a breath of
fresh air in rearranging mortgages closely suited to your waning mortgage
conditions. With FHA Refinance Home Loans, it can give you the remedy of
your mortgage turmoil to give you some monetary freedom. This FHA program
will help you secure your loans in better standing.
The Federal Housing Administration or the FHA is there to provide refinancing
assistance on existing home mortgages. FHA programs such as this come in
with attractive benefits. Certified lenders are guaranteed by
the FHA to provide the necessary funds that will allow you for whatever
purpose you deem it. Since FHA Refinance Mortgages will insure your loan of
the necessary repayment capability, lenders are keener to offer good mortgage
rates while being assured of getting paid in case borrowers default. FHA loans
are usually given out to eligible borrowers with impressive credit standing.
However, people who do not have good credit ratings can still enjoy an FHA
loan on the condition that their records must not show any records of declaring
bankruptcy in the previous five years. Single parents with a limited source of
income can also avail of an FHA loan. As long as an individual qualifies
according to FHA requirements, FHA is there to extend you loans and give out
refinancing programs. FHA loan approvals depend on the assessment of the
borrower’s eligibility to qualify.
Requirements of FHA loans cover renovations to be done in a cost and energy
efficient manner. FHA is huge on the conservation of natural resources.
So, you ask, "What makes FHA Streamline Refinance Mortgage different from a
conventional mortgage?"
FHA Refinance Home Loans offer options that are not available from other
traditional mortgages, which are stricter by any means to borrowers with
tainted credit standings. With this FHA program, there is security in FHA loans
since lenders are guaranteed repayments. Down payment is only 3% and other
costs are carried within the mortgage already. FHA also takes the responsibility
in helping you find homes and lending schemes that do not have down
payments. FHA borrowings can be used for home repair costs, too.
Do not be misled. FHA is not a lender but a guarantor to your borrowings from
a lender. Lenders who are certified by the FHA are under the FHA’s rules and
regulations and they should strictly abide by them.

FHA Loans - Can You Still Buy a Home With Little Money Down and Less
Than Perfect Credit?
The simple answer is yes. There are still programs available that allow credit
challenged borrowers to buy homes with as little as three and half (3.5) percent
down payments. I know the media makes it sound like the banks have stopped
lending all together. This simply is not true! The program that I talked about in
this article is still closing mortgages every day. Plus it is one of the most secure
programs available. The program has been around for a very long time, but got
thrown by the wayside with sub-prime mortgage which caused the crisis our
financial system is in right now.
The first program and you probably have heard of it is FHA. FHA has been
around since the 1930s. It was designed to increase home ownership, and
reduce the required down payment. Today it still accomplishes
these goals plus some. FHA today is used for first time home buyer, credit
challenge borrowers, and borrowers with no credit scores. FHA is also a
valuable program for borrowers who are looking to refinance their homes. FHA
does have credit guidelines, but they do not look at credit scores. What is the
difference you are asking, for example you can have a 540 FICO score which is
a low score, but as long as you have not had
any collection, judgments, or bankruptcies in the last twenty four (24) months
there is a very good chance you will qualify for a mortgage with FHA.
Bankruptcy, FHA does allow borrowers who have filed for bankruptcy.
Generally the bankruptcy has to be discharge for twenty four months, but
under extenuating circumstances it is possible to get an FHA mortgage after
only twelve months after the bankruptcy has been discharge. But you will need
to document the reason for the bankruptcy, and the reason you filled must be
out of your control.
Qualifying for an FHA mortgage is simple. First your debt to income ratios
should be no more than 32/44. The first number is your housing ratio. The
percentage of your monthly income going out to the proposed housing payment
including, taxes, insurance, monthly mortgage insurance premium (MIP), and
any homeowner association dues (HAO) - the second number is referred to as
the total debt to income ratio.
This is the total percentage of your income to total debt including the proposed
housing payment. FHA does allow a non-occupying co-borrower as long as this
person is a family member by blood or marriage. For example if your debt
ratios are too high to qualify for the home you want to purchase you could use
a non-occupying co-borrowers income to qualify for the home you want. Also, if
your FICO score is in the low 500’s, adding a non-occupying co-borrower with
good credit scores will strengthen the over all loan.
Second are the credit requirements, and these are only general rules. FHA
really has no set credit guidelines and allows for exceptions with documented
extenuating circumstances. FHA is normally looking for no credit collection
(medical collections are always overlooked), no judgments, and no
bankruptcies in the last twenty four months (24). If you have no credit this ok
as well, but you will need to provide your loan officer with nontraditional credit,
acceptable nontraditional credit references include the following utility bills,
phone cell or land line, cable, and auto insurance. You will need to provide
three accounts with a twelve month payment history for nontraditional credit
trade lines.
Third is down payment. FHA does require a down payment of three and half
(3.5) percent, conventional mortgages require at least five (5) percent down with
minimum credit scores of 640. However the down payment can come from a
gift from a friend or family member. There are also local grants, or bond money
that are acceptable forms of down payment. So it is possible to get your down
payment paid for. Plus the seller can pay up to six percent (6%) of the total
purchase for closing cost , and pre-paid items such as taxes, insurance and
days of interest. FHA has very competitive rates. Mortgage rates change daily,
but on most days FHA has the same rates as conventional loans, so FHA
borrowers are getting the same rate on a thirty year fixed mortgage as someone
with excellent credit. FHA also has lower mortgage insurance premiums than
conventional loans.
Mortgage insurance is paid to the lender anytime a loan to value is greater than
eighty (80) percent it is to protect the lender in case of loan default.
Conventional mortgage insurance is based off credit score and loan to value.
Rates start at fifty basis points (.0005) of the loan with excellent credit, and
goes has high as
two points (.02) percent. FHA has a upfront premium that is financed into the
loan of one and three quarter (1.75) percent, and a fixed monthly premium
regardless of credit at fifty five basis points (.00055).
To calculate your monthly mortgage insurance premium take your base loan
amount multiply by your mortgage insurance factor. For example base loan
amount of $90,000 * .00055 = $49.50 a month.

FHA Loans & Bankruptcy - Can I Get Approved?


With the rise of Bankruptcies in our nation as a result of the recent financial
upheaval many are wondering if they will qualify for an FHA Home loan with a
recent bankruptcy on their credit report and in county records. Others may be
seeking other types of conventional financing. In either case they would like to
know how a past bankruptcy will affect their ability to obtain a mortgage. The
matter gets a little more complicated since a Chapter 7 and a Chapter 13 will
bring to bear different qualifying guidelines depending
on which loan program the borrower is seeking.

Chapter 7 bankruptcy
Chapter 7 bankruptcies should be discharged for at least 2 years in order to
qualify for a loan. If the discharge date was more than 12 months but less than
24 months then extenuating circumstances must be documented. Not being
able to sell a home due to a job loss or transfer would not qualify as an
extenuating circumstance. The borrower must re-established credit and show a
payment history to the new creditors. It will also require the lender to
document that the situation that led to the bankruptcy no longer exists. The
reason for this is simply that the lender does not want to see the borrower get
into financial trouble again. Document what led to the bankruptcy and how
habits of the borrower have been corrected. Also, the probability of filing again
sometime in the future has been greatly diminished due to proof of financial
responsibility. Mainly it demonstrates the ability to handle the overall
household finances especially in regards to being able to make a mortgage
payment on a timely basis each month.

Chapter 13 bankruptcy
Chapter 13 requires that 12 months of payout have occurred and that the
payments have been made on time. Also, the court would have to give
permission to enter into a mortgage transaction. What this means
is that a person could be in a Chapter 13 currently and be able to obtain
financing if all other underwriting guidelines are met. No sub prime lenders
allow a current chapter 13 to be underwritten. That’s why this
type of mortgage is so helpful to many people and you get market interest rates
rather than sub prime rates with pre-payment penalties. There are no prepay
penalties on an FHA loan. So, in essence a Chapter
13 is treated kind of like a consumer debt. Borrowers must show 12 months of
payments made on time. Many home buyers need this information. They’ve
been told by their local bank or by conforming lenders
that they don’ t qualify and so their hopes and dreams are dashed thinking
they can’t purchase a home for several more years. This information should
cause them to contact a lender who specializes in FHA home
loans and see about getting approved.
Similar to a Chapter 13 Bankruptcy would be a Consumer Credit Counseling
scenario. People who have elected this route to pay down their debts should be
relieved to know that they also can apply for a mortgage as long as they meet
similar guidelines. They must show that they have made payments for 12
months in a timely fashion and get permission from the counseling agency to
purchase a home and incur new debt.
In all 3 scenarios listed above it is important to not incur any derogatory
credit.- Absolutely none whatsoever. Just put yourself in the underwriters’
shoes. There is a BK7 or BK13 or CCC and derogatory credit after the
discharge or during the repayment period - how do you think that will look? It
will look like the person has complete disregard for paying their bills on time.
We all know that situations arise that prevent bills to be paid on time; however,
most of these are not extenuating circumstances from a lender’s perspective.
For those of you who meet these basic guidelines set forth above take the time
to contact a mortgage professional who is an expert in FHA loans and see if you
currently qualify to purchase a home.

Typical Lender Required Repairs For FHA Loans


If you are interested in using the FHA 203K Loan program to fund repairs on
your home or a home you are interested in purchasing, there are some repairs
that are required. The lender and the FHA want to know that their investment
will be protected, and as such you will have to add these repairs to your work
write up in order to get approval for the loan.

Standards for Energy Efficiency


The Department of Housing and Urban Development (HUD) wants all homes
that are renovated under the FHA loan program to be as energy efficient as
possible. For this reason, there are several required repairs that contribute to
better energy efficiency in the building. Doors and windows must be weather
stripped if the weather stripping is old and worn. The outside of the building
must be inspected for openings or cracks, and these must be sealed or
caulked.
If you are opening any walls on the exterior of the home, such as to replace the
drywall, you will need to re-insulate behind the wall. You do not have to remove
walls for the purpose of insulation, however. It simply must be done if the walls
or ceilings are opened. Also, attic and crawl spaces must be ventilated
adequately.
If you are replacing any HVAC systems, you will need to insulate around the
supply and return pipes and the ducts in any parts of the home that are not
heated or cooled by the system. You also must not
purchase a unit that is too large. The unit cannot be more than 15 percent
larger than the house needs, unless the manufacturer does not make a unit
that fits better than the one you have chosen.

Renovations Required for Safety


The FHA does not have many safety requirements. Of course, all repairs must
keep the home up to the city’s coding standards. The only safety requirement
that the FHA gives applies to smoke detectors. All sleeping areas must have at
least one smoke detector located adjacent to the room.

Requirements for the First $5,000.


The first $5,000 of the loan amount must be used for major repairs to the
existing structure. Cosmetic
repairs can be included in the loan, but they may not make up the first $5,000
you are given. Repairs that qualify for the first $5,000 include the following:
* Repairing structural damage
* Repairing termite damage
* Making the home handicapped accessible
* Installing new HVAC systems
* Septic or well installation or connection to city sewer
* Fixing the roof, flooring, or gutters
* Major changes to landscaping
* Major projects that increase aesthetics, such as adding new siding or a
covered porch.
Once you have $5,000 of major repairs in your work write up, you can begin
including minor cosmetic items like new paint or trim.
In addition to these requirements, each individual lender may have repairs that
they want to see done to the home. Remember, the lender wants the home to
be sellable in the event that you do not repay what you owe, thus the reason
for required repairs. This is not a problem, however, because the money will be
made available in the FHA 203K Loan for these items.

Keys to Buying a Condo With an FHA Loan In This Market


There are great bargains to be had for FHA Loan borrowers on condos and
town homes in today’s market,
as long as you are educated and make the right choice on which condo or town
home to purchase.

Here are some advantages of condos vs. single-family-homes for FHA


Home Loan borrowers:
• Condos usually have lower overall prices than single-family-homes
• Affordable condos can often be found in prime neighborhoods and prime
areas with good school districts. Areas where prices of single-family-homes are
out of reach
• I think this is an important point. You can often find a condo that you could
afford in the really prime neighborhoods, beach areas, and great school
districts, where a single-family home in that same area would sometimes be
completely out-of-reach. Owning a condo in these types of neighborhoods
allows you to enjoy living close to amenities, great schools, beaches etc…
Where if you bought a single-family-home for the same price or more you would
be in a below average neighborhood with poor schools and less parks, beaches
and amenities.
• Condo owners are responsible for less upkeep and less maintenance than
owners of single family homes
• With a condo, generally the owner is only responsible for the interior of the
condo and the homeowners-association is responsible for all the exterior areas
• This means you don’t have to worry about mowing the lawn, roof leaks,
exterior painting, etc…

Here are some dis-advantages of condos vs. single-family homes for FHA
Loan borrowers:
• Single-family homes can hold their value more although not true in every
case; generally single-family homes go up first in value and go down last
• Condos and Town homes have homeowners’ association dues
• Condos and Town homes have to be approved by FHA in order to use a FHA
Home Loan to Purchase

Below is some important research for FHA Home Loan borrowers to


conduct prior to purchasing a condo:
• Make sure the condo is approved by FHA. You can find this out by contacting
us.
• Find out the percentage of owners vs. renters in the complex by contacting
the homeowners association
• Make sure the homeowner association (HOA) is financially sound and has
adequate reserves to cover repairs so there are no special assessments. A rule
of thumb is 25%-30% of the HOA gross annual income should be in reserves.
• Check with the HOA to find out if there are any pending special assessments.
A special assessment is a fee the condo HOA will ask you to pay above and
beyond your monthly HOA dues to pay for condo repairs the HOA does not
have enough cash for.
• Get a copy of the CC&R’s from the HOA and read them
• Get the latest copy of the HOA’s meeting minutes to review
• Check to see that there is no pending litigation against the HOA or against
the builder
• Check to see how HOA dues compare to nearby condors
• How long has the complex been managed by the same company? The longer
the better.
• Ask other condo owners what the like most and least about living there
• Check the soundproofing the of the common wall
If you do your research up front you can often buy a condo with a 3.5% down
FHA Loan that will be a tremendous investment for you and that you will enjoy
for years to come. Please contact us to get preapproved for a FHA Home Loan to
be ready to purchase your dream condo today.
Credit Score Tips For FHA Home Loans
Keeping a close watch on your credit score is essential for getting a FHA Loan.
Although FHA Loans and not credit score driven and can be fairly lenient when
it comes to credit scores, it is still very important to be careful and watchful of
your credit at all times. In this article I will discuss some tips to keep your
credit outstanding and also tips to raise your credit score if you currently have
a lower score then you would like.

Basics of how credit scoring works


Mortgage companies and FHA lenders use a FHA borrowers numerical credit
score as part of the process in making the decision whether to extend credit
through a FHA Loan to that borrower. There are 3 different credit bureaus that
your creditors report to; Equifax, Trans Union and Experian. Each of these
credit bureaus have a scoring model where they analyze your total credit
history and produce a score from 300 to 850. 300 being the worst possible
score a borrower could have and 850 being the best possible score a borrower
could have. When FHA loan companies like ours do a credit check during the
pre-approval process, we pull what is called a “tri-merge 3 bureau report”. This
credit report merges information from all 3 credit bureaus into one report and
produces 3 different credit scores. FHA lenders throw or the high score and low
score and go off your middle score in assessing your credit worthiness. It is
very important that you find out what your scores are. You can contact me and
I can access your full 3 bureau mortgage oriented credit report for the best
picture of your credit. Or you can also go to the individual bureau web sites to
check for yourself. This won’t be a merged report though and it may be score
differently than a mortgage report that we would pull for you. But it would still
give you a good idea where you stand.

Factors That Increase Scores for


Some of the factors that increase your score are:
• On-time payments, no late payments on any accounts
• Keeping your revolving debt (credit card) balances at 30% or less than your
credit limits with that creditor
• No collections or judgments
• Having enough credit lines - it can hurt your score if you don’t have any or
enough lines of credit
• Time since first opened line-of-credit. If you cancel credit cards, cancel the
newer ones first, try to keep the older ones that you have had for a while.
• Time since derogatory items first occurred. The saying “time heals all
wounds” also applies to dings on your credit, the more time that lapses since a
late payment.

Factors That Hurt Scores


These are of course the opposite of the above.
• Late payments are the #1 thing that can really hurt your credit score. You
have to be a maniac about making every payment on time and never having a
late payment on your credit. Set your credit cards, car payments, student loans
and other obligations on automatic payments so you never miss a payment
• Try not to “max-out” your credit cards - keep them at 30% or less of your
credit limit
• Don’t let unpaid items go to collections, try to negotiate with creditors. If you
have a collection on your report, it will not improve your score to pay it off. This
is counterintuitive, but it is how the credit scoring system works. If you have a
collection it is better to wait until right before you close on your house with
your FHA Loan before paying off. VA lenders may or may not ask you to pay off
collections prior to close
• It is good to keep at least 4 credit lines open. A credit line can be a car loan,
student loan, home loan,
or another type of loan. You can open up a credit card and just use it for
required life expenses such
as groceries, but pay it off every month.
• And of course bankruptcies, foreclosures, short sales hurt your credit.
However 2 yrs after a Chapter 7 bankruptcy you are eligible for a FHA Loan
(less than that if you can document extenuating circumstances), 3 years after a
foreclosure and 2 years after a short sale. I have seen borrowers with terrific
credit scores only 2 yrs after a bankruptcy, so all is not lost.

How To Quickly Raise Your Score


If you currently have a credit score too low to obtain a FHA Loan, don’t give up,
there may be a way to quickly raise your credit score to qualify for a FHA Loan.
At www.socalvaloans.com we have available to us a way to work with the credit
bureaus to do a “rapid re-score” and sharply increase your credit score in 2-5
days. We also have a software tool to analyze different things you could change
on your credit and how much that change would raise your score. OK, so now
on to some quick tips to raise your score:
• First make sure you get a merged credit report from all 3 bureaus (we can
obtain for you) and go through every detail and make sure there are no
mistakes. If you find mistakes contact that creditor immediately and have them
remove the mistake from your report
• If you have credit card balances that are 30% or more than your credit limits,
try to either pay those cards down to 30% or transfer the balances to other
cards where you spread out you credit card debt to more than one card where
no balances are above 30% of your credit limits.
• If you have collections or judgments on your credit report, call the creditors
and ask them if they would be willing to delete the item from your report if you
paid some or all of collection. It’s important to get in writing that they will NOT
just mark the item paid on your credit, that they actually DELETE the item
entirely from all 3 credit bureaus.
• If you do not have “enough” credit, open a store card or something like that to
get more lines of credit. But be careful with applying too many places at once,
as too many inquiries can hurt your credit. Once your complete some of these
activities to raise your credit, we can do a “rapid re-score” and have new credit
score for you in 2-5 days! So these are some items to keep in mind when you
are getting ready to buy or refinance with a FHA Loan. Please call us today for
a free evaluation and counseling regarding your current credit situation.

FHA Streamline Refinance - Dramatically Drop Your Payments


FHA Home Loan Refinance Options
1. FHA Streamline Refinance
One of the great features of FHA home loans is the ability for borrowers to
easily reduce their FHA mortgage interest rates by refinancing to a lower rate
30 year fixed FHA home loan. If you currently have a FHA loan you can take
advantage of this program to refinance your FHA mortgage into a lower interest
rate. This special refinance does NOT require an appraisal, income
documentation or credit report! This makes it a super easy, painless process to
realize huge savings. Current mortgage interest rates are close
to 40 year lows, so there is an opportunity to lower your payment substantially.
You must already have a VA loan to take advantage of this VA rate reduction
refinance. The table below shows the savings of refinance from a 6.75% rate to
a 5.75% rate.

These rates are examples Loan Amount Payment at 6.75% Payment at 5.5%
Yearly Savings
$150,000 $972 $851 $1,452
$200,000 $1,297 $1,135 $1,944
$300,000 $1,945 $1,703 $2,904
$400,000 $2,594 $2,271 $3,876

2. Refinancing from a NON FHA Home Loan to a FHA Home Loan


If you currently have a mortgage that is NOT a FHA home loan, you can also
refinance into a 30 year fixed (or 15 year fixed) VA home loan. This may be
particularly attractive to you if you are currently in a adjustable rate loan. In
order to complete this FHA loan refinance, you would need to have your
property appraised and provide your credit and income documentation.
Another great attribute of FHA mortgages is that you can have a loan up to
97% of your properties value. This makes many people eligible for a refinance
even if your property value has fallen.

3. Cash Out FHA Refinance Loan


Whether you currently have a FHA home loan or NON FHA home loan, you can
refinance into a new FHA loan and get cash back. This loan allows you to go up
to 95% of the property’s value. In order to complete this FHA loan refinance,
you would need to have your property appraised and provide your credit and
income documentation. This FHA refinance can be a great way to get cash to
do home improvement projects. Perhaps you want to redo your kitchen,
bathrooms, floors or landscaping. Or, you may want to pay off higher interest
rate auto loans or credit cards and thus “roll them” into a low rate 30 year fixed
VA loan. A big advantage to using a cash-out FHA home loan to complete home
improvement projects or to pay off higher interest rate debt is that once that
this expenses are not tax deductible since they are part of your FHA mortgage.
Additionally, you have the security of a 30 year fixed rate.
So as you can see there are some really great options to refinance into a FHA
loans to change your situation for the better. If you have any questions, please
give me a call and we can analyze your situation and discuss all the options
available to you. We are a fully FHA approved mortgage company and
specialists with FHA lending.

Using FHA Home Loans to Buy 2-4 Unit Properties


A terrific way for home buyer to utilize FHA home loans is to purchase a 2-4
unit property where the FHA borrower occupies one of the units as their
primary residence. FHA home loans are very unique in that they allow a FHA
borrower to buy a 2 unit property with only 3% down payment and a 3-4 unit
property
with 15% down payment if they plan to occupy one of the units as their
primary residence! This is extraordinary. Yes you heard it correctly; you could
buy a 2 unit building and put only 3% down.
Benefits of purchasing 2-4 units as a primary residence
There can be some really great benefits to using FHA home loans to purchase a
2-4 unit property vs. a single-family home. The most obvious benefit is that you
will receive the rent from the other units to help offset your own housing
payment. In fact over time, you could get to the point where the rent from
the other units pay the ENTIRE housing payment and you live without a
housing payment! Imagine what it could do for your budget if you did not have
a house payment. And even better, the rents from the other
units could not only one day pay the entire housing payment on the property,
but they could also give you additional income on top of that. Now if you were
to buy a condo or single-family home, you have to make the entire housing
payment yourself. You would not have rents from other units.
In addition, you could one day move out of your 2-4 unit property to move up
to a nice primary residence and retain the 2-4 unit property as an investment
for life. Over time this property would appreciate in value and also provide you
with cash flow for your retirement.
Using the rents from the other units to help you qualify
A wonderful aspect of using FHA home loans to buy a 2-4 unit property is that
you can use the rental income from the other units to help you qualify for the
FHA loan. For example, if you were to buy a 4 unit property where the 3 units
you would be renting would bring in $1,000/mo income each, you could use
90% of that $3,000 in rental income to help you qualify for the loan. This can
enable a FHA loan borrower to qualify to buy when if they were to buy a condo
or home without rental income they would not qualify.
So as you can see, using your FHA home loan benefits can be an outstanding
way to buy your primary residence and also provide you with a tremendous
investment for your entire life.
WASHINGTON — As part of the Treasury Department’s consumer outreach
effort and with the April 15 individual tax filing deadline approaching, the
Internal Revenue Service today began a concerted effort to educate taxpayers
about additional options at their disposal to claim the new $8,000 first-time
homebuyer credit for 2009 home purchases. For people who recently
purchased a home or are considering buying in the next few months, there are
several different ways that they can get this tax credit even if they’ve already
filed their tax return.

The Treasury Department encourages taxpayers to explore these options to


maximize their credit and get their money back as fast as possible.

“The new credit can get money in the pockets of first-time homebuyers
quickly,” said IRS Commissioner Doug Shulman. “For people who recently
purchased a home or are considering buying in the next few months, there are
several different ways that they can get this tax credit even if they’ve already
filed their tax return.”

First-time homebuyers represent a significant portion of existing single-family


home sales. The expansion in the first-time homebuyer credit will make it
easier for first-time homebuyers to enter the housing market this year.

Under the American Recovery and Reinvestment Act of 2009, qualifying


taxpayers who purchase a home before Dec. 1 receive up to $8,000 or $4,000
for married individuals filing separately. People can claim the credit either on
their 2008 tax returns due April 15 or on their 2009 tax returns next year.

The filing options to consider are:

• File an extension. Taxpayers who haven’t yet filed their 2008 returns
but are buying a home soon can request a six-month extension to
October 15. This step would be faster than waiting until next year to
claim it on the 2009 tax return. Even with an extension, taxpayers
could still file electronically, receiving their refund in as few as 10 days
with direct deposit.

• File now, amend later. Taxpayers due a sizable refund for their 2008
tax return but who also are considering buying a house in the next few
months can file their return now and claim the credit later. Taxpayers
would file their 2008 tax forms as usual, and then follow up with an
amended return later this year to claim the homebuyer credit.
• Amend the 2008 tax return. Taxpayers buying a home in the near
future who have already filed their 2008 tax return can consider filing
an amended tax return. The amended tax return will allow them to
claim the homebuyer credit on the 2008 return without waiting until
next year to claim it on the 2009 return.

• Claim the credit in 2009 rather than 2008. For some taxpayers, it
may make more financial sense to wait and claim the homebuyer credit
next year when they file the 2009 tax return rather than claiming it now
on the 2008 tax return. This could benefit taxpayers who might qualify
for a higher credit on the 2009 tax return. This could include people
who have less income in 2009 than 2008 because of factors such as a
job loss or drop in investment income.

The IRS reminds taxpayers the amount of the credit begins to phase out for
taxpayers whose modified adjusted gross income is more than $75,000, or
$150,000 for joint filers. Taxpayers can claim 10 percent of the purchase price
up to $8,000, or $4,000 for married individuals filing separately.

IRS.gov provides more information, including guidance for people who bought
their first homes in 2008. To learn more about the overall implementation of
the Recovery Act, visit www.Recovery.gov.

Download from IRS Site http://www.irs.gov/pub/irs-pdf/f5405.pdf