HOMEBUYERS & THE $8000 TAX CREDIT

I received a phone call last week in which the caller needed to know how the $8000 Tax Credit would affect her. Will it allow her to refinance her Home Mortgage with her Lender, will she qualify for the tax credit - should she wait until the Bill is signed by the President in March - what are her options.
These are some of the questions that are uppermost in the minds of most homeowners - they have a need to know how all the financial disbursment will impact them - what benefits could they accrue from this Stimulus Packet.
There are, obviously, lots of confusion here, which is not helpful to those who are dilligently and earnestly attempting to determine exactly what is happening. Most of the confusion comes from the so-called "experts" - the radio and tv talking heads - who use the air to opine and postulate their opinions as if they were facts. So, I informed my caller of the information I had to date and suggested she await the signing ot the Bill, which will then be law, which means that whatever is contained therein is final and could be relied on in making decisions going forward.

First Time Homebuyers Only
It is understood that even some wanted the benefit to go to all home buyers - the final draft, as it is to be signed by the President is to benefit only first time homebuyers -so that immediately disqualifies my caller - she may need to consider a Mortgage Loan Modification if she is upsidedown or simply, a refinance - if there is enough equity. There are other stipulations in the Bill.
* the homeowner must live in the home for a minimum of three years, otherwise the tax credit will be forfeited, and the IRS will want its monies back in full.
*to qualify for first time homebuyer, you must not have owned a home in the most recent past three years.
*the purchase must take place between January 1, 2009 and November 30, 2009. The benefit here for the taxpayer/homeowner, and its a big benefit, is that the Tax Credit is REFUNDABLE!!!! which is to say you can get the whole $8000 in a refund check. Here is how it works, because again, there are stipulations applied to your tax liability. It's not hard to explain, but it could be hard to understand, (did you get that? - did I confuse you?) Well, follow me a bit more and it will come clearer.

The Effect of the Tax Credit
Unlike a Tax Deduction which in effect is a reduction against earned income for tax purposes, the Tax Credit will be used to reduce your tax liability for tax purposes.
*If you owe $10,000 in taxes and apply for the $8,000 tax credit your tax bill is reduced to $2,000 and if you already paid $11,000 in payroll deductions or estimated tax payments, you will get a refund of $9,000 - $8,000 tax credit (which is NOT a loan) plus the $1,000 regular refund over-payment. Conversly if you owe $10,000 in taxes and you only paid $9,000 in payroll deductions, the difference of $1,000 will be paid from the Credit and you get a refund for $7,000.

Minimums and Maximums
Not everyone will benefit from this Tax Credit, even if they are first time buyers. Why?According to a report from Prudential California Realty, the bill reinstates last year's 2008 loan limits for FHA, Freddie Mac and Fannie Mae loans. These limits were equal to the greater of 125% of the 2008 local median home price or $271,050 for FHA and $417,000 for Freddie and Fannie, with an overall maximim cap of $729,750.
The Credit is phased out to individuals with AGI 0f $75,000 to 95,000 and couples filing jointly from $150,000 to $170,000 - this then in an indication of not just how MUCH house you can buy to qualify, but in reality WHERE you should buy to quality....this we will discuss further in another posting.