Have you heard of the “First Time Homebuyer Tax Credit”?

 

It is a program that lets you buy a home and get 10% of the purchase price (up to $8000 total) back, as a check, from the IRS.

 

This money from the Government is not a loan.   You don’t have to pay it back as long as you keep your new home for at least 3 years.

 

It’s not a tax refund either – it’s a gift from congress to help stimulate the economy.

 

The first time homebuyer credit is a gift from the U.S. Government to first time homebuyers as part of the overall “stimulus package” enacted by congress over the last year.

 

The tax credit pays you 10% of the purchase price of the home up to a total of $8,000, which you never have to repay as long as you continue to own the house for at least 3 years.

 

 

 

In order to qualify, you must:

 

1.      Not have owned a primary residence (a house that you live in) for at least 3 years.

 

2.      Buy a home have a contract on a new home before April 30, 2010 and close on that contract by June 30, 2010.

 

3.      Have an “adjusted gross income” (Also known as AGI. It’s the last number on the first page of your 1040) of less that $125,000 if single or $225,000 if married filing jointly.

 

4.      Be a U.S. citizen or resident alien.

  

5.      Not owe the IRS any money, or owe child support or other collected debts.

 

Do you qualify for this free money? If yes, then read on . . .

 

You decide that you want all the advantages of home ownership – the pride of having your own home and the fact that part of your payment goes to pay off the property, instead of just being rent.

 

We meet to discuss the process, give you the paperwork, and show you the details of the contract.

 

When you fully understand the deal and agree that it’s right for you, we’ll complete the Land Contract, which is a form of seller financing that we’ll explain in a minute.

 

We complete the necessary forms to get the tax credit, and send them to John Hyre, an accountant that we are using to file your tax return to get the tax credit. He’ll get the check from the IRS, forward it to us, and you’ll endorse it for your downpayment.

 

Within the next 5 years, you’ll apply for a conventional mortgage and refinance the property paying off the owner and taking full title in your name.

 

First and foremost, it means that you’d stop being a renter and start being a homeowner. Under a Land Contract, you have all of the rights (and responsibilities) of homeownership, and start getting your piece of the “American Dream”.

 

Second, and we think you’ll like this a lot, your monthly payment will probably GO DOWN slightly.

 

Third, you’ll get the option of writing some of your house payments off of your income taxes. You’ll have to consult your tax professional about this one, but many homeowners can lower their taxes by deducting the interest they pay on their Land Contract and the property taxes.

 

Fourth, you’ll get the property value appreciation as the market recovers and real estate values start to climb. We can’t guarantee that the prices will increase, when the prices will increase or how much the prices will increase, but we expect them to, and since your purchase price will be FIXED at the time of the Land Contract signing, any increase in values are yours.

 

 

As then new owner of your new home, you’ll be expected to take care of the repairs and maintenance, just as if you had a mortgage from the bank. That’s why we strongly recommend that, even if you’ve lived in the house for a number of months, you get a professional property inspection before signing the Land Contract. This way, no “hidden” problems will arise later that become an unpleasant surprise to any of us. You’ll also pay taxes and insurance as part of your monthly payment – but we still expect the overall total to be LESS than rent.

 

The government tax credit is free and does not need to be repaid if you live in the house for a minimum of 3 years. If you move out sooner, you’d need to repay some of the funds based on how long you have lived in the house. If you don’t plan to live there for at least 3 years, or think you might have problems making the monthly payment, you should probably continue to rent.

 

There is no bank qualifying – we will carry the financing for you. If you have a good rental payment history, you qualify.

 

However, you WILL have to qualify for bank financing within 5 years. If your credit is bad, you will have 5 years to get it cleared up so you can qualify for a mortgage. We will provide you referrals and recommendations for working on this and will assist you – but it will be your responsibility to do it.

 

Like any homeowner, you have the right to make changes and improvements to your home to make it more like home. If you want to paint, go ahead. If you want to make improvements, go ahead. The only things we would want to know about are major changes – and then we only care because we want to make sure that anything you do is going to enhance the condition and quality of your home so that it increases the value and makes it easier to refinance when the time comes.

 

 

                       

 

We provide this explanation of Land Contract so you can become educated about what we are proposing. We know that while many people are familiar with “Rent to Own” or “Lease Options”, Land Contracts are not as well known. We want you to know that this is not something we came up with. Land Contracts have been around for a long time.

 

            “A Land Contract (sometimes known as a “contract for deed” or an “installment sale agreement”) is a contract between a seller and buyer of real property in which the seller provides financing to buy the property for an agreed-upon purchase price and the buyer repays the loan in installments. Under a land contract, the seller retains the legal title to the property, while permitting the buyer to take possession of it for most purposes other than legal ownership. The sale price is typically paid in periodic installments, often with a balloon payment at the end to make the time-length of payments shorter than the corresponding fully amortized loan without a final balloon payment. When the full purchase price has been paid including interest, the seller is obligated to convey legal title to the property to the buyer. An initial down payment from the buyer to the seller is usually also required by a land contract. The legal status of land contracts varies from region to region . . . “

 

“. . . Although land contracts can be used for a variety of reasons, their most common use is as a form of short-term seller financing. Usually, but not always, the date on which the full amount of the purchase price is due will be years sooner than when the purchase price would be paid in full according to the amortization schedule. This results in the final payment being a large balloon payment. Since the amount of the final payment is so large, the buyer may obtain a conventional mortgage loan from a bank to make the final payment.”

 

“. . . Land contracts are sometimes used by buyers who do not qualify for conventional mortgages offered by a traditional lending institution, for reasons of unestablished or poor credit or an insufficient down payment . . . “

 

 

We know that many people are familiar with Lease Option or Rent to Own programs and will want to know how a Land Contract is different.

 

·        Under Lease Option you are a Residential Tenant under Georgia Law whereas under Land Contract you are an owner with different legal rights and responsibilities.
 

·        Under Lease Option, you pay a non-refundable Option Fee whereas under a Land Contract, you pay a down payment.
 

·        Under Lease Option, you pay rent and you may get a monthly credit towards the purchase whereas under a Land Contract you make a payment the same as a mortgage (Principal, Interest, Property Tax and Insurance or PITI) and you are building equity every month.
 

·        Under Lease Option, the rental property owner is responsible for repairs and maintenance whereas und Land Contract as owner, you are responsible for repairs and maintenance.
 

·        Under Lease Option, you are paying off the Owner’s home loan with your rent payments whereas with Land Contract you are building your own equity by paying off your own loan.
 

·        Under Lease Option, you cannot sell the house without exercising the option whereas under a Land Contract you own the house and can sell it for a profit any time (subject to the “three year” rule of the first time homebuyer tax credit).
 

·        And perhaps most important for our purposes, under Lease Option you DO NOT qualify for the 10% up to $8000 tax credit whereas under a Land Contract, you DO qualify for the tax credit that we are willing to accept as your down payment.

 

Lease Options and Land Contracts are completely different legal processes. Neither is necessarily good or bad – just different as explained above. Note that this is not intended to be a comprehensive discussion of these two types of agreements.

 

If you’d like to explore the possibility of owning your own home, give me a call as soon as possible to schedule a meeting. The first time homebuyers tax credit is only in effect for two more months, and this process takes a little time to implement. There is no obligation in calling – do it today,