Now’s a great time to buy home

Here are some questions and answers about the tax credit extension from the National Association of Home Builders: Question: When does the tax credit extension expire?

Answer: The tax credit now applies to sales occurring on or after Jan. 1, 2009, and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010, will qualify.

Q: Are there income limits?
A: For sales occurring after Nov. 6, 2009, there are income limits of $125,000 for single taxpayers and $225,000 for married couples filing joint returns. The income limits for sales occurring on or after January 1, 2009 and on or before Nov. 6, 2009, are $75,000 for single taxpayers and $150,000 for married taxpayers filing joint returns.

Q: How is this home buyer tax credit different from the tax credit that Congress enacted in early 2009?
A: The tax credit’s income limits were increased, the documentation requirements were tightened, and the program's deadlines were extended.

Q: What types of homes will qualify for the tax credit?
A: Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000.

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Millions of people took advantage of the $8,000 tax credit for first-time homebuyers that was set to expire on Dec. 1.

But there’s good news for many people: Congress extended the program through April 30, 2010, and it’s not just for first-time home buyers anymore.

The credit, called the Worker, Homeownership, and Business Assistance Act of 2009, now also allows those who have not have owned another home for at least the previous three years to take advantage of the $8,000 tax credit.

Also included in the extension is $6,500 credit to new purchasers who have lived in their current residence for five years or more.

“With housing prices what they are and today’s low interest rates, I can’t imagine a better time to buy your first house,” said Mortgage Network loan officer Tanner Ware of Savannah, Ga.

The National Association of Realtors estimates close to 2 million first-time buyers will file for the tax credit this year, amounting to 350,000 additional home sales.

Many of those buyers purchased homes using FHA mortgages. Backed by the Federal Housing Administration, the loans are especially attractive to borrowers who have little cash to put down and less-than-stellar credit scores.

“Interest rates on FHA mortgages are not driven by credit scores like they are with conventional loans,” said Michelle Wilson, vice president, mortgage lender, with Beach First National Bank. “With conventional loans, if your credit score is 660, your interest rate could be raised to 6 percent. With an FHA loan, you could get 5 percent.”

These days, most lenders won’t approve loans for borrowers with credit scores below 720. Qualified homebuyers applying for the government-backed FHA can have scores as low as 620.

Homebuyers also need less cash up front to close the deal.

Instead of the usual 20 percent down payment, FHA homebuyers need just 3.5 percent of the purchase price, and their closing costs and fees can be wrapped into the loan. FHA is also one of the few home mortgage programs that allow the down payment to be provided by a relative.

On the downside, FHA loans for homes purchased in Beaufort County are limited to $387,500. There’s also an up-front mortgage insurance premium and a monthly premium added to the borrower’s total payment. The mortgage insurance, however, is tax deductible.

“The up-front fee usually runs about 1.75 percent of the loan amount,” said Nick Kristoff, a mortgage consultant with CoastalStates Bank. “But it can be financed into the mortgage so you can pay it off over the life of the loan.”

FHA loans are for primary residences only. There is no prepayment penalty and interest rates are competitive with conventional mortgage rates.

“This is a great product for people who have lower credit scores or those without a lot of money to put down,” Tanner said. “You just need to have the income to make the monthly payments.”