Home Buying
How Much Will It Cost?
Down Payment
Gone are the days when you could get a house with 0% down. Most lenders require 20% of the houses selling price as a down payment before they will consider lending you the money to purchase a new home. But despite that, it is a great time to buy a house. As interest rates remain near historic lows and homes sell for bargain prices, coupled with Washington's first-time homebuyer tax credit, now is the ideal time to purchase a house. For many first-time buyers, a tax credit implies an interest-free loan that must be repaid over time. But this time it's different.
The 2009 home ownership tax credit is a free cash credit to your pocketbook. The credit is not a loan and does not have to be repaid.
Who is eligible?
- Eligibility is granted to individuals with incomes of less than $75,000, or for those married and filing jointly with incomes under $150,000.
- The home buyer cannot have owned a home in the last three years, including either spouse of those married and filing jointly.
- Prospective buyers must purchase and close on the home between Jan. 1 and Dec. 1, 2009.
- Must also maintain the home as their primary residence for at least three years.
- Ownership of a vacation or rental property does not disqualify the buyer, provided the property was not the buyer's primary residence.
How does it work?
- First-time buyers will be reimbursed 10 percent of the cost of a home up to $8,000. The tax credit can either be claimed on the buyer's 2009 return or as an amendment to the 2008 return.
- Consider this example: A first-time buyer with an annual income of $50,000 purchases a home valued at $85,000. The buyer's 2008 income tax totals $1,000. If the buyer claims the credit, it will pay the tax debt, and the buyer will receive $7,000 from the government for the remaining credit.
So what's the real story?
- The credit means up to $8,000 in cash that you can use to furnish your new home, remodel or supplement your down payment.
- Even if you are a prospective buyer, you can claim the credit on your return now
and have more money for a down payment. Just remember to first contact a trusted
tax professional. Consolidated Credit Counseling Services offers Pre-Purchase Counseling
Services. You can meet one-on-one with a counselor to discuss the criteria for buying
a home, review mortgage products for first time homebuyers, determine a budget and
overall credit history information, understand the steps to buying a home, and learn
about closing and post closing information. Counselors can assist clients in preparing
an "action plan" to follow to prepare for homeownership. Documentation usually required for a homebuyer preparation appointment will include current pay stubs for your
most recent months of employment, two years tax returns and W-2s, credit information
(if applicable), and three months of bank statements. Additional information may
be required.
Closing Costs
You can expect to pay about 4-5% of the sales price
in closing costs - sometimes more, sometimes less. If you are short on cash, your
real estate agent may help you write an offer that includes the seller paying for
some of your closing costs.
Ask the lender or broker about each closing cost
or fee. Some may be negotiable, while others may not be.
Typical closing costs include:
Application fee (find out what the refund policy
is), processing fee, lender's underwriting fee, and/or a mortgage broker fee.
Appraisal, survey, and flood certification fee
(to show whether your home is in a flood zone)
Title charges including the title search, a title
policy (lender's and/or owner's policies) as protection if there is a problem with
the title, and in some states, attorney fees.
Two month's worth of homeowner's insurance and/or
property taxes to be held by the lender, if they will be collecting your insurance
and taxes with your monthly payment.
Miscellaneous charges such as courier or wire
transfer fees.
Within three business days of applying for your
mortgage, you'll get a Good Faith Estimate of closing costs. Go over it carefully
and discuss it with your lender or broker. Take a copy with you to closing to check
for any new surprises that show up when you close.
