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Information, tips, and how to's about buying and selling real estate, local events and hot spots, the current housing market and tax incentives.
Buying a foreclosed home could be a good idea for someone looking for a bargain, here are a few things to think about before making the decision.
Hire an Agent
Consider hiring a real estate agent with experience in foreclosed properties so that they will be able to better assist you in the process. If you work with an agent, make sure they know your priorities. Make sure to ask any potential agents if they have experience with foreclosure sales.
Prioritize
Make a checklist of what is important to you in a home and then prioritize them so that you are able to stay focused while searching for your new home or investment.
Keep Focused
Once you begin looking at properties, make detailed notes and compare them to your checklist to determine if each home is the right fit for you. This will help you to make your final decision by weeding out properties that do not have the qualities that you are looking for.
Do Your Research
Once you have made a decision and found the property that you would like to buy, you need to find out as much as you can about it and the circumstances that contributed to its' foreclosed status. The primary sources for this information are county assessors and recorders offices, title companies, your real estate agent and the owner.
To determine whether a foreclosed house is a good buy or investment, your agent should research sales comparables, property history, and title status that may affect the value of the property. Before you close the deal on any property, it is recommended that you do a complete title search through a title company.
Factor in the Cost of Repair
Depending how long a property has been vacant and whether the last owner maintained it well or not, a foreclosed home may have a lot of fixing up to be done. In addition to inspecting the property yourself, it is important to have the property professionally inspected. Banks generally require a home inspection when lending money for a mortgage anyway. Estimate the cost of repair to determine whether the property is still the right one for you.
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President Obama has signed the extension of the Homebuyer Tax Credit which extends the credit of $8,000 to qualified first-time home buyers purchasing a primary residence on or before April 30th, 2010. Another exciting change is that the new bill expands the tax credit by offering a $6,500 tax credit to existing homeowners that purchase a primary residence between November 6, 2009 and on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010).
Definition of a First-Time Home Buyer:
The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the home ownership history of both the home buyer and his/her spouse.
Definition of an Existing Home Owner or Repeat Buyer:
The law defines a tax credit qualified move-up home buyer (“long-time resident”) as a person who has owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law tests the home ownership history of both the home buyer and his/her spouse. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.
How the Tax Credit amount is determined:
The tax credit for a first-time home owner is equal to 10 percent of the home’s purchase price up to a maximum of $8,000
The tax credit for a repeat home buyer is also equal to 10 percent of the home’s purchase price, but the maximum is $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.
Income Limits:
For first-timers and repeat buyers closing on a home after November 6, 2009 and on or before April 30th, 2010, the income limit for single taxpayers is $125,000 and the limit is $225,000 for married taxpayers filing a joint return.
How to Claim the Tax Credit:
You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns). No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase.
Some Points to Keep in Mind:
Expanded tax credit benefits apply to members of the military, the foreign service and intelligence community. Go to http://www.federalhousingtaxcredit.com/service_mem.php for additional information.
Home purchases in 2010 may be claimed on an amended 2009 income tax return.
Persons who are claimed as dependents by a taxpayer or who are under age 18 do not qualify for a tax credit.
Home purchases from relatives of the taxpayer or the taxpayer’s spouse do not qualify for the tax credit. The IRS defines relatives as ancestors (parent, grandparent, etc.), lineal descendants (child, grandchildren, etc.) and spouses.
Married couples are not eligible to claim the first-time home buyer tax credit if either spouse has previously owned a home. Though, they may qualify for the repeat home buyer tax credit.
Neither the first-time home buyer tax credit nor the repeat home buyer tax credit have to be repaid unless the home is sold or is no longer used as the buyer’s principal residence within three years after the initial purchase.
Taxpayers must submit a copy of the HUD-1 settlement statement and IRS Form 5405 to claim the first-time home buyer tax credit or the repeat home buyer tax credit.
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