Wednesday, October 21, 2009

South Bay-Beach Cities: Home Buyer Credit... Did you cheat?

According to  a number of housing reports the First Time Home Buyer Tax Credit has been a huge boon to the housing market.   Estimates vary,  but most agree that the credit has been claimed by about one million folks and that of that one million about 350,000 home sales would not have happened if the credit had not been in place.    

However it now seems that IRS is wondering just how many of those receiving the credit were entitled and how many were cheating.  With that in mind IRS is now reviewing 100,000  of the claims  filled by buyers.  Seems like someone finally figured out that maybe as there was little need to prove your qualifications  a few of these claims might not be on the up and up.  What a shock!  

The South Bay hasn't had many folks receiving the credit because of  home prices and the income restrictions...$75,000 for single folks and $150,000 for married people.  However with talk of extending the credit and upping the income levels we could see more potential buyers qualifying. 

The Real Estate Bloggers are finding the timing a tad suspicious.  Is there a reason the government is sending out IRS just as it comes time to start paying out the credit?  Wouldn't it have made more sense to have had  tougher criteria in place in the first place rather then now spending a lot of money reviewing tax claims... Questions...questions...questions.

The word around town is that if you did file for the credit you best have all your paperwork together for at least the last three years and it needs to be pristine.  If Congress does agree to extend the credit and revamp the  income requirements upward then take heed if you plan to file for the credit.  It's probably not a good idea to file for the credit along with a creative tax return.


Anonymous said...

You mention in your post that the home VALUE has an impact?

I have a client who is self-employed who is putting 65% down on a $1.2 house leaving a $417k mortgage. She is self-employed so her net income is low, and she hasn't owned a house in 8 years. I think she qualifies, no?

The problem has been trying to get her a loan. Being self-employed, she shows average income over 2 years of $65k, although her gross revenue is much higher. suggestions?

Kaye said...

Anon 8:09,

Have your tried FHA.. they are more lenient then any other program.. also with FHA she can have a co-borrower and it is easier for them to qualify then with a standard loan.

Is she using retained corporate earnings in her business.. if so you need to find a lender who understands how that works and have her accountant show a 2-3 year P/L. A smart lender might be able to get a loan through if he understands the concept.

Another thought is to check with Merrill Lynch or another large brokerage house if she has stocks... Merrill has a program where they will basically make a first TD loan against assets if she has a stock account with them.

Your client is the person a stated income loan was meant for.. someone who can verify assets but isn't W2. Unfortunately I haven't found anyone who is doing stated income.

Good luck and I would love to know if you get her a loan.

Anonymous said...

She could also claim more income on her tax return.

If she's putting that amount of money down, she's probably twisting the income tax system to have a low income (and therefore pay lower taxes).

The side effect is you can't even use your tax returns to verify your income.

I know several self employed people complaining about this....the fact that she wants the 8-K tax credit and has 600-K to put down doesn't inspire a lot of sympathy with me, somehow.

Kaye said...

Not knowing the buyer's exact circumstances makes it difficult to find solutions.

She may have inherited some money or been very diligent about saving.

The question isn't about her down payment but rather about obtaining financing.

As to the buyer credit if she qualifies then she should be able to take it. However if she is scamming the system that is another matter

Anonymous said...

Thanks for the feedback Kaye.

She's no tax scammer. ONe of the twists is that she will use her home as a home-office, saving over $20k per year in office rent that is previously deducted as a biz expense.

What amazes me is that the banks are telling her that having 4 years of mortgage payments in savings (on top of the downpayment) is irrelvant. So is having a loan to value ratio of 35%.

It's all about the income to debt ratio. You know, the one thing that could change in a moment's notice (at least for those that have jobs).

Anonymous said...

Home buyer credit, redux.

The irony is that the client is doing so well this year (especially as compared to last), that she may not qualify for the home-buyer credit---

yet they still won't loan her money.

It's a shame a few million bad apples had to spoil the Alt-A loans for the gainfully self-employed.

Kaye said...

Your client is not alone. This is one of the things that lenders need to address.

Unfortunately most lenders seem to work from extremes rather then taking a mid-point stance that would work well over the long term.

Lenders should have a program in place that works for folks who don't have cookie cutter jobs. These programs should also be reserved exclusively for people who are self employed not for the general public. This is what caused problems was that loans meant for a specific group wound up being used indiscriminately with some disastrous results.