On November 6, 2009, President Obama signed a bill to extend the tax credit for first-time homebuyers (FTHBs) through June 30, 2010. The bill also opens up opportunities for others who are not buying a home for the first time.To learn what the new tax credit means to you, take a look at the concise overview below.

ho Gets What?

First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?

In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

What are the Income Caps?

The amount of income someone can earn and qualify for the full amount of the credit has been increased.Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligibleJoint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

What is the Maximum Purchase Price?

Qualifying buyers may purchase a property with a maximum sale price of $800,000.What is a Tax Credit?A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.

How Much are First-Time Homebuyers (FTHB) Eligible to Receive?

An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.

Who is Eligible fort FTHB Tax Credit?

Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How Much are Current Home Owners Eligible to Receive?

The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?

No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?

Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.According to the IRS, factors that would demonstrate the ownership of the property would include:1. Right of possession,2. Right to obtain legal title upon full payment of the purchase price,3. Right to construct improvements,4. Obligation to pay property taxes,5. Risk of loss,6. Responsibility to insure the property, and7. Duty to maintain the property.

Are There Other Restrictions to Taking the FTHB Credit?

Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:

• They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
• They do not use the home as your principal residence.
• They sell their home before the end of the year.
• They are a nonresident alien.
• They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
• Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
• They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?

Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.

If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?

Yes, provided that the child meets the other requirements for the tax credit.

The Federal Reserve has cut interest rates six straight times since September 2007. Most analysts are predicting that the Fed will cut rates even further when it meets at the end of this month. And yet, despite a full 3% in interest rate cuts during this time, mortgage rates are significantly higher now than they were just three months ago. How is that possible? Don’t rate cuts equal lower mortgage rates? Read on as the team at YOU Magazine goes behind the headlines to show you how these Fed cuts do and don’t affect your mortgage.

Here’s the straight story: Mortgage interest rates are dictated by one thing and one thing only — the performance of mortgage-backed securities. Despite what you may have heard in the media, interest rate cuts from the Federal Reserve have no direct effect on long-term mortgage rates.

The True Role of the Federal Reserve
The Federal Reserve, our nation’s central banking system, was put in place to help avoid major financial collapses like the Depression. The Fed has two specific duties: to keep inflation in check and regulate the nation’s financial institutions. And while it has some regulatory power over how the mortgage industry operates, in its 95-year history, the Federal Reserve has never once set or reset mortgage interest rates. It simply has no authority to do so.

But, to control inflation, the Fed has several tools at its disposal, including the ability to adjust the Discount Rate and the Fed Funds Rate, which are very different from mortgage interest rates. By increasing or decreasing these interest rates, the Fed can manage inflation and economic growth according to its financial policy. While movement in these interest rates does affect the Prime Interest Rate – which directly affect things like credit cards, home equity lines of credit (HELOCs), and adjustable-rate mortgages – long-term mortgage rates do not always follow suit.

In the following chart, mortgage rates are shown to have actually increased from March 2007 to March 2008, even though the Federal Reserve cut interests rates six consecutive times, slashing three full percentage points in the process.

What Really Moves Mortgage Rates?
Mortgage rates are set daily by individual lending institutions and are based solely on the trading activity of mortgage-backed securities (MBS), a type of bond that investors trade daily.

Without getting too technical, MBS are bonds that represent mortgages currently in place. For instance, let’s say you have a 30-year fixed rate mortgage of $200,000 at an interest rate of 6%. That loan isn’t worth anything right now, but over a 30-year period, it represents a profit of 6% or up to $12,000 every year for the bank that owns the loan, provided you make all of your payments.

However, instead of waiting 30 years to collect on that profit, your loan is “sold” to a bank where it is bundled together with other similar loans. It’s like winning the lottery and choosing the cash value prize instead of accepting full payments that are spread over 20 years. Of course, you get less money than the total value of the prize if you choose the cash upfront, but you don’t have to wait twenty years to collect it all.

This group of bundled loans then, just like a public company, is split into smaller units or bonds and sold just like stocks in a company to investors. These bonds, secured or backed by the profits from the loans, are called mortgage-backed securities. And just like stocks, investors like you and me can buy and sell them every day.

And it’s the performance of these specific bonds that lending institutions use to set mortgage rates.

The real dynamic at the heart of interest rate movement, then, is the complex relationship between stocks and bonds, supply and demand, inflation, news that moves markets, the economy, employment levels, political events, gross domestic product, and any number of other factors.

And while there exist a number of somewhat reliable economic indicators, if anyone tells you that he or she has the secret formula for predicting these movements exactly, it’s just not true. There is no magic formula, no index, no rate cuts or Fed activities that work 100% of the time.

The best you can hope for is an experienced mortgage professional who truly understands mortgage-backed securities and how they trade. He or she can utilize specific market knowledge and experience to take advantage of daily fluctuations and lock in a rate that could save you thousands of dollars throughout the life of your loan.

If you’re waiting for the Federal Reserve – or worse, the media – to create refinance or new home buying opportunities for you, don’t count on it. Call an experienced mortgage professional and get the facts.