Good thing first time buyers are getting that $8000 tax credit, because if you’re a first time buyer looking at condos there is some bad news headed your way on April 1. Fannie Mae & Freddie Mac, the government sponsored entities that help keep mortgage rates low for borrowers with loans less than $417,000 (now about to rise to $729K in our area thanks to the stimulus bill), has announced higher fees and tougher credit score requirements. These extra fees are supposed to counter the higher risks and losses associated with certain loans.
Condo borrowers, in particular, have been singled out: unless you have a whopping 25% downpayment, you’ll be hit with a three-quarter point add-on penalty regardless of your credit score. Buyers with a FICO score between 700 and 720 will pay an extra three-quarters of a point, too, whether on condos or not (a point = 1% of the loan amount). Below 700? Expect 1.5% in fees. Ouch.
All the more reason to look at FHA, which is less harsh about credit scores and requires just 3.5% down payment. But condo borrowers may still have a tough time: FHA does not mesh well with many condo buildings.
The stimulus bill, having had its original House and Senate versions reconciled in Committee, is now on its way to President Obama’s deskin time for his President’s Day goal. I’m still wading through the Committee report text, but here is what I can see:
- Credit is $8000 (up from the House version of $7500 but down from the Senate’s $15,000)
- Does not have to be repaid as long as you own the house for 36 months from the date of purchase and you purchased in 2009. If you sell before 3 years then you have to repay the entire thing.
- Applies to purchases from January 1 through December 1, 2009. (Note: I’ve seen some other reports saying 12/31, and others saying July or August, but from what I read in the Conference report posted online, it says 12/1) If you bought in 2009 you can elect to treat it as purchased on 12/31/2008 so you can claim it on your 2008 return.
- Is a refundable credit – so even if you don’t owe $8000 in income taxes then you get the difference back (NB: This is an update from previous post)
- DC buyers cannot claim both this credit and the $5000 DC homebuyer credit.
- Unlike the previous $7500 credit, you can claim the credit even if your mortgage was financed by a mortgage revenue bond (like with VHDA loans) – check with your tax advisor!
- Limitations are similar to the previous $7,500 “credit” (interest free loan) in 2008: income restrictions start at $75,000 (single) and phase out completely at $95,000 or $150,000 (married filing joint) and phase out at $170,000, and have not owned a home in previous 3 years.
See page 19 of the Conference Report pdf file here for more.
Move-up (non first time) buyers — don’t worry, there’s something in the Bill for you, too…
There is another important change that hasn’t been getting nearly as much press: the temporary reinstatement of the increased conforming loan limits for high cost areas. You may recall that our local Washington, DC, area’s conforming loan limits rose from $417,000 to $729,750 last year, giving purchasers of higher end homes an important break on interest rates for loan limits up to that amount. At the end of 2008, the temporary limit expired and it dropped to $625,500. That means any loan above that amount fell into the “jumbo” category–making it very difficult and very expensive for borrowers in that bracket. This stimulus bill reinstates that $729,750, which should make it easier for folks to get these loans which now qualify for Fannie, Freddie (and possibly FHA…unclear at this time) guidelines, which translates to lower rates and greater availability.
Read more about conforming loan limits and how they work here.
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