Beginning in 2008, the US government
has changed tax rules, made money available and established programs
for interest rate and loan modifications in an attempt to provide some
relief to homeowners caught in falling real estate markets or rising
mortgage loan rates. They have also provided tax credits to encourage
home purchases. For a while, it seemed as though a month didn’t
go by without a new program, and it is all rather confusing.
What follows is a brief outline of the programs that seem to be most helpful
at the moment. Its purpose is to give you ideas about possibilities if you
or someone close to you is in trouble – or would really like to buy
a house. For details, you need to talk with your lender or your accountant.
If the first one you talk to seems a bit fuzzy on the details, get a second
opinion. There is too much at stake to miss the opportunity.
Let’s start with the fun part – buying a first home.
At this point, a first time homebuyer (defined as someone who has not
owned a home within the past 3 years) can claim a credit of up to $8,000
against their income taxes if they buy a personal residence that closes
by the end of 2009. This money stays in or comes back to the homebuyer’s
pocket. If the house closes before that person files their 2008 taxes,
they can claim it on their 2008 return (remember that you can get an
extension for filing until October). If they file their 2008 return
prior to the closing, they would claim it on their 2009 return. The
$8,000 must be repaid ONLY if the house is sold or converted to a rental
within 3 years of the closing.
Now let’s look at some other tax relief.
In the past, if you lost your house to foreclosure (or did a short sale)
and didn’t have to pay back the difference between what you owed
and what the lender received, the IRS counted that as income to you,
and for tax purposes it was added to whatever income you had that year.
So, if the bank lost $50,000 on the loan and you were in the 25% tax
bracket, you owed an additional $12,500 in taxes for the year. That was
a nasty surprise at tax time. The good news is that Congress changed
the rule so that the forgiven debt is not taxable, but only for tax years
2007 – 2009. Four caveats on this one:
1. The tax is only waived if the debt forgiven was on your personal home
2. No more than $2,000,000 in forgiven debt is waived
3. If the forgiven debt was a home equity loan used for anything other
than purchase or improvement of the property, the tax is not waived.
4. When you sell the house, the amount of debt forgiven will be deducted
from the cost basis of the house. This could cost you some capital gains
taxes.
Homeowner Affordability and Stability Plan
This is the program launched March 4 by the Department of the Treasury
to provide relief to homeowners who are
• struggling to make their house payments or
• delinquent on their payments and/or
• who cannot refinance into a lower interest rate loan due to declining
house values.
It applies to loans which are currently held by Fannie Mae or Freddie
Mac, but any lender may participate. The FDIC, who has jurisdiction over
lenders, has expanded the program to require participation by all lenders
who have accepted TARP funds from the government.
The goal of the program is to make payments more affordable so that
people can stay in their homes. It has 2 major components:
• Home Affordable Modification
• Home Affordable Refinance
The Home Affordable Modification Program has the goal of moving qualified
borrowers into fixed rate loans on which the payments are no more than
31% of gross income. Funding is a combination of government and lender
funds. Some details of interest to borrowers:
•
The program is available to borrowers current on their mortgage as well
as those in default
•
It applies to loans on buildings of 1 to 4 units, as long as one of them
is the borrower’s primary residence.
•
It can apply to the first mortgage on a property encumbered with more
than one loan.
•
Borrowers may be eligible for a monthly incentive applied to the mortgage
debt.
•
The loan must be no larger than the current Fannie Mae & Freddie
Mac loan limit of $375,000.
•
It does not change the amount of the loan. It changes the interest rate
to adjust the payment, although lenders have the option of changing the
loan amount as well.
The Home Affordable Refinance Program provides the opportunity for homeowners
to refinance a current loan into a lower interest rate loan, even if
their equity position has fallen substantially.
As an example: Buyer purchased a home in 2005 for $200,000 with 20% down and
a 3 year adjustable interest rate of 3.5%. Their loan to value (LTV) is 80%,
which qualifies them for a loan conforming to Fannie Mae/Freddie Mac standards.
By 2009 their home’s value has fallen to $160,000 and their interest
rate has gone up to 7%. They need to get their payments down, but they don’t
have enough equity in their home to refinance.
This is the scenario for which the program is designed. It enables a homeowner
in this situation to get a new first mortgage for up to 105% of their home’s
current market value. For the homeowner in our example, that means they could
refinance their full current loan amount at current interest rates, thereby
cutting their payments dramatically. They may still qualify even if they have
a second mortgage, as long as the new first mortgage is less than 105% of the
value of the home.
So how do you know if you are eligible Start by talking with the lender
to whome you are making your payments. Go to www.MakingHomesAffordable.gov.
The process can be confusing, but it can be so worth it. Good luck!
For further information or questions feel free to contact The Johnson
Team at 360-303-2734, we would be happy to help! |
