Income Limits on First-Time Home Buyer Tax Credit

Reader Question: "I am looking for help with a question on the 1st time home buyer tax credit... My fiance and I are buying our first home. We are scheduled to close Oct. 23, 2009. My income is exceeds 75k however her income is in the 40k range. Together our incomes are well under 150k. Individually she would qualify for 100% of the tax credit but because of my income I would not. Jointly we would qualify for 100% of the tax credit but since we are not married I don't think we can file jointly, right? We are scheduled to get married in the Spring of 2010, will we have to secretly elope to get this 8k or is there some way around it?"

That's a good question. I guess it depends on whose names are on the mortgage. Yes, you have to be married to file a joint tax return. If your fiance's name is on the mortgage, then it seems that she would qualify for the tax credit (based on her income). That's really a tax law question, so I can't offer much insight.

Here's what the IRS website says: "The credit is reduced or eliminated for higher-income taxpayers ... For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000. This means that the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less."

The part that "phases you out" is the 75K income limit for single filers. Depending on your income, you might be eligible for a portion of the credit, but not all of it. But I would imagine that only one of you could claim the credit for the purchase.

I would read through the marriage and income scenarios on this page of the IRS website:
http://www.irs.gov/newsroom/article/0,,id=206294,00.html

Disclaimer: I am not a tax professional, nor do I work for the IRS. So I'm certainly in no position to offer advice on filing a tax claim program as confusing as this one! Anyone with questions about income limits on the home buyer tax credit should refer to the link provided above.

Mortgage Lending Rates for September 2009

For the second quarter of 2009, mortgage lending rates remained below 5% (for a 30-year fixed loan). For the last couple of months, however, they have been hovering above the 5% mark. Most experts predict that lending rates will fluctuate between 5.5% and 6% for the rest of this year.

What does this mean to you, as a potential home buyer? It means that now could be an excellent time to lock in a rate for a home loan. The housing marketing has been showing signs of recovery lately, which probably means that mortgage lending rates will continue to rise over the coming months. If you're a first-time home buyer, you still have time to benefit from the $8,000 tax credit -- as long as you close by November 30th.

So if you've been planning to buy a home, and you're looking for a good sign to move forward, this could be it. Lending rates are still low, home prices are down from last year, and you could still qualify for the aforementioned tax credit.

Best Mortgage Rates are Hard to Get

The mortgage lending rates mentioned at the beginning of this article are averages. You might qualify for a better rate, or a worse rate, depending on several factors. If you want to get the lowest rates a lender has to offer, you'll probably need a credit score of 750 or above. You'll also need to make a down payment of at least 3.5% (on FHA loans) or 10% (on non-FHA mortgages).

Of course, none of this is set in stone. These are just the average qualification guidelines used by lenders in the current economy. If you want to find out if you qualify for the best mortgage lending rates available, you have to apply for a loan. You can start the application process from this page of our website.

I mentioned earlier that you'll need excellent credit to quality for the best rates a lender has to offer. So if you haven't checked your credit score in a while, you might want to start there. If you find out that your score is low, you can take the steps needed to improve it. So the sooner you can find out where you stand, the better.

Questions About the Lending Process?

Do you have a question about mortgage lending rates or how to buy a home? If so, you can send it to us. Please read the information on our Q&A page to learn more.

You can also enter your question into the search box at the top of this blog. There are literally thousands of articles and Q&A sessions on this website, so you're bound to find some helpful advice.

The Real Estate Purchase Agreement Explained

I've received a few emails about real estate purchase agreements lately, so I thought I would answer all of those questions at once. In this lesson, I'll talk about the key parts of the purchase agreement and what you should know about each one of them.

To put this article in context, I am referring to residential real estate purchases -- as opposed to commercial property. This article is intended for home buyers who have questions about the purchase agreement / contract that is used during the home buying process.

What Is a Purchase Agreement Anyway?

For some people, this might be fairly obvious. But I don't want to make any assumptions regarding your level of understanding, so let's start off with a simple definition.

When you buy a house, you will have to submit what is known as a real estate purchase agreement to the seller. If you're buying a brand-new house, the agreement will be between you and the builder. If you buying an existing home that somebody lives in (a resale property), you will submit your purchase agreement directly to the homeowner. Since most first-time home buyers purchase resale properties, I'll focus primarily on that type of purchase agreement.

This agreement is a legal document between the buyer and the seller. It outlines certain to aspects of the sale, including the purchase price. It's a way for the seller to say, "I agree to sell you this house for X number of dollars." On the buyer side, it states the same thing -- "I agree to purchase this property from you for X number of dollars."

The real estate purchase agreement also specifies the time frame for the sale, any conditions or contingencies relating to the sale, and other things you should be aware of.

Some parts of the purchase agreement may be unique to your state. For example, many states require certain disclosures about a property, and these disclosures must be made known within the purchase agreement.

A lot of the information contained within this document is also "boilerplate" information. That is, it includes a lot of standard clauses that do not change from one purchase agreement to the next. So when preparing or reviewing a real estate agreement, you should pay particular attention to the areas that are unique to the sale. These include the sale price that has been agreed upon, the time of the sale, and any contingencies relating to the transfer of property. By "contingencies," I'm talking about things like financing, home inspections, the sale of your current home (if applicable), and other things that need to be in place for the sale to go through.

Viewing Sample Real Estate Documents Online

My advice is to find a sample agreement online and spend some time looking it over. If you do an Internet search for real estate purchase agreements in your state, you should be able to find plenty of information and even some sample documents. This is a good way to familiarize yourself with the information contained in a purchase agreement, and it will help you review such an agreement when the time comes to do so.

I also recommend working closely with a real estate agent, especially if you are buying a home for the first time. In order to get a license to practice real estate in your state, an agent must pass a test that includes everything about purchase agreements and how to prepare them. In other words, a good real estate agent will be an expert in this subject. So he or she will be able to point out the important parts of a real estate agreement to you.

Related articles:

• Tips for Making a Home Buying Offer
• How to Make a Real Estate Offer
• How to Evaluate the Seller's Asking Price

I hope this article sheds a little light on the subject for you. Good luck with your home buying process.

How to Get Home Loan Quotes Online

Reader question: "I was wondering how to get home loan quotes from the Internet. Is it as easy as filling out a form on a website, or is there more to the process than that?"

Yes, it is that easy. But there are several things you should know before you start requesting home loan quotes online. So let's talk about what happens when you fill out a loan request on a lender's website.

Actually, before we even get to the process, I want to talk about the terminology we are using here. It will help to cover some basic terms before we begin, just to make sure we're on the same page.

What is a Home Loan Quote Anyway?

This is a generic term that can mean a couple of different things. In general, any time you ask to be pre-approved by a mortgage lender, you are requesting a home loan quote from them. The lender will review your financial situation (your credit score, your current level of debt, your income, etc.), and based on this information they will tell you how much they are willing to lend you.

So a home loan quote is basically the same thing as an application or a pre-approval request. Regardless of what you call it, you are asking the lender to tell you how much you are qualified to borrow.

As you've indicated with your question, you can actually get home loan quotes online these days. This usually happens in one of two ways. You will either request a quote directly from a particular lender, or you will get multiple quotes through a network of lenders. The second option is often referred to as an "aggregator" website, because it will aggregate (or gather) home loan quotes from several different sources.

In truth, the online process is just meant to get the ball rolling between you and the lender. The lender can't really pre-approve you until they have received certain information from you, as we talked about above. They won't ask for all of this information on the website, because that would be far too cumbersome for the potential borrower. Instead, they ask for some basic information in order to provide you with a preliminary quote.

Just realize there could be a big difference between this initial quoted amount and the amount you are ultimately approved for. For example, you might go online to get home loan quotes and be told you can qualify for up to $300,000. But later, after the lender performs a more comprehensive review of your finances, they may say you are only qualified for $270,000. Something to keep in mind as you move forward.

Establish Your Budget Before Getting Quotes

The next thing I want to talk about is your budget. Before you start talking to lenders and filling out forms for mortgage quotes, you need to have a home-buying budget firmly established. Specifically, you need to know how much you can afford to spend each month toward your home loan payments. Some people think this is what the home loan quote process is all about, but that's not the case at all. When you get a quote from a lender, it only indicates the amount the lender is willing to give you. It doesn't indicate the amount you can actually afford to pay each month. These are two separate things, and you should treat them as such.

So before you start gathering home loan quotes online, you need to establish a monthly spending limit for yourself. You can learn how to do that in the article below:
How much house can I afford to buy?

Good Credit = Home Loan Success

It's also a good idea to check your credit before you start getting quotes from mortgage lenders. Your credit score is one of the top three factors that will determine (A) whether or not you get approved for a loan, and (B) what kind of interest rate you get. The last thing you want to do is request a home loan quote from a lender that knows more about your finances than you do. This is what happens when you don't know your credit score, because the lender will check that score as soon as you submit an application or a pre-approval request.

Checking your credit score will also help you determine if it needs to be improved. Some people don't realize they have bad credit until they start asking for home loan quotes online, which is the wrong way to find out about it. You should be proactive and find out where you stand now, before you start shopping for mortgage rates. That way, if you need to improve your score, you can take the appropriate steps in that direction. We have plenty of advice on this website to help you raise your credit score, and you can find that in our credit library.