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| PURCHASING A HOME |
We are a direct lender!
We fund and close our own loans! | Minnesota and Wisconsin Home Buyer Tax Credit Information
When you decide to buy a home in Minneapolis, St Paul, Milwaukee, Madison, Duluth, Rochester or anywhere in Minnesota or Wisconsin, you should first contact a good mortgage consultant who has experience, and a complete range of mortgage products like us.
We offer all main "types" of mortgage loans.
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Conventional - (10, 15, 20, 25, 30 yr fixed, and ARMs)
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JUMBO - (15, 30 year fixed, ARMs)
Unless you fit into one of the "special categories" of loans: VA, FHA, MHFA, First Time Homebuyer, bruised credit, you are going to get a "conventional loan". Some areas, by their demographics, have a lot of these special case loans, some do not. The remainder of this discussion contains general rules for all loan types. Each person has different needs, and a different situation. Please call and talk with us today for a complete (and free) evaluation of your exact situation.
 
The purchase price that you will be able to afford will depend on 3 factors:
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Your income and how much other debt you have. This will determine how large a PITI (principle, interest. tax and insurance) payment you can afford,
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How much you have for down payment and closing costs, and,
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Your credit history.
Jargon:
You need to understand 3 terms to follow the rest of this:
1) LOAN-TO-VALUE (or LTV). This is the loan amount as a percentage of the purchase price or appraised value (whichever is less). If you are buying a $150,000 home with $15,000 down payment you have a 90% LTV. Loans over 80% LTV (less than 20% down) typically require PMI (Private Mortgage Insurance). There are ways to try to minimize it, but the reality is that you will always "pay" somehow. Plus, now that PMI is tax deductible (as of 1/1/07), using tricks to avoid it is no longer necessary.
2) HOUSING RATIO This is your total monthly housing expense (principle, interest, tax, insurance, and PMI and homeowners dues, if applicable) divided by your gross monthly income ("gross" = pre-tax income). If you have a "W2" job your income is easy. If you are self employed please note you gross income is what you bring from your Schedule C onto line 12 of your 1040. Also, a 2 year history of consistent self-employment income is usually necessary.
3) DEBT RATIO This is your total monthly obligations (PITI above) plus your monthly payments of your installment and revolving debt (credit cards, car loans, student loans, etc.). Utility payments (gas, electric, telephone are not counted). Some details here: this would include child support, alimony or separate maintenance. Any debt with fewer that 10 months to go does not count. A debt such as a "buy furniture now make no payments until more than a year from now" does not count as long as there are 12 months to go without payments. The same goes for student loans.
 We often see young couples "blow it" by buying a couple of nice cars. If you are spending 15% of your gross income on your auto loans you should make one of them a van because you will not be able to afford a house.
OK, Now What?
First rule? There are no rules! Although the basic information that follows is typical for most loans, there are many programs that allow for compensating factors. Please understand that none of this is etched in stone. Compensating factors, such as a long time on the job, or significant other liquid assets will enable higher ratios at a given loan. You really need to talk with your Loan Officer to sort this out. Don't ASSUME you can't get a home mortgage loan in MN or WI. Contact us today to discuss your exact situation. You may be surprised at what you hear!
Generally, if you have excellent credit you can buy a home with little down. As your credit score declines your maximum loan-to-value will decline and your ratios will have to be lower. If your credit is really lousy you might have to put 20% down.
Although ZERO down may sound good, it is often NOT the best way to go. To get your best pricing (interest rate, etc.) but making a down payment. Plan on putting down a minimum of 3.5% of your own money for a FHA program, or 5% for a conventional program. PLUS, in today's market, true zero down loans have pretty much disappeared and are almost impossible to find. If you NEED a zero down loan, you should probably stop looking at houses until you are ready!
The best advice I can give young people just thinking about this is to keep absolutely perfect credit. Once you get out of college your credit score is like your SAT was before you got into college. It is the key to opportunity. Remember if your credit is bruised, you probably still qualify for a mortgage. Don't assume you can't buy a house because of a few late payments on a credit card. Each situation is different. Call right now to discuss your personal situation.
Your income and credit will determine the size loan you can qualify for. You now need the cash to make it happen. You need cash for 3 things:
1) Down payment - The actual down payment required depends on what program you are using. 5% down typically gets you the best rates and program options. 20% down is usually the minimum required to avoid mortgage insurance. We have great low down/no down programs too:
2) Closing costs. This is where a lot of people get misled. You need to cover your one time or "non-recurring" closing costs, your recurring closing costs: prepaid interest, insurance, impounds if there is PMI and potential pro-rated property tax, origination, credit report, appraisal, etc. Click here for a more detailed example of real closing costs that you should expect on all mortgages, with all lenders. Also be advised that a lot of mortgage companies are being very sneaky in how they quote your closing costs. Read "Beware of the Bad Good Faith Estimate" so you don't get taken. (FYI: On VA, it is zero down payment. You still have closing costs! Call for details on how you can sometimes buy with no out of pocket expense)
3) Reserves. Your lender does not want to see a loan application the shows that when you close the deal you will have $5.99 left in the bank They usually want to see 2 months PITI in reserve. Don't try to minimize this. Make sure that you get together all of the cash necessary to close. (Again, understand that none of this is etched in stone. Its just a general guideline. We have many programs that do not require any reserves. Call for details.)
NOTE: If you are planning on seeing Realtors and potentially making an offer on a home, it is essential that you get "pre-approved". This is very different from "pre-qualify".
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Pre-Qualify is usually when you simply talk with a lender on the phone. Give them basic information, etc. Then they say something to the effect of "sounds like you should be able to buy a house for $X amount" THIS IS NOT AN APPROVAL. Do NOT make an offer to buy a home based on this information.
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Pre-Approval is when you go through the entire application process. An underwriter has APPROVED your loan. The only thing missing is an actual property address.
Need a Realtor to help search homes for sale in the Minneapolis or St Paul MN area? We can help you with that too! As a full service lender, we offer Real Estate, Title, and Mortgage services all in one location!
Using this web site you can apply for your mortgage online, or download an application, fax it to us, and we can Pre-APPROVE you. For faster service, all it takes is a 15 minute phone call. Then you can walk into a Realtor's office with a letter stating that you can close a given deal. This will get the attention of the Realtor, it will get the attention of the seller, and it will mean that you can close quickly. This is very important for properties for which the seller has multiple offers. I have seen my client's offers accepted even though they were $3,000 less that other offers because they knew they were pre-approved and could close in 2 weeks. To some sellers time is more important that the extra money. This is especially true if they are buying another house and need the cash to close their deal.
For more general information about buying a home in MN or WI, you can contact us anytime. Our experts are here to help you with no up-front costs or obligation.
Enhanced Tax Credit Provides Outstanding Opportunity for Home Buyers
EXPANDED Home Buyer Tax Credit at a Glance
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The tax credit is for first-time home buyers and repeat buyers.
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The tax credit does not have to be repaid.
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The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
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The credit is available for homes purchased on or after January 1, 2009 and before April 30, 2010.
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Purchase agreements must be signed by April 30, 2010, and closings must be final by June 30
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Individuals with annual incomes up to $125,000 and joint filers with incomes up to $225,000 qualify for the full credit. Individuals with incomes up to $145,000 and joint filers with incomes up to $245,000 qualify for reduced credits.
Frequently Asked Questions About the expanded Home Buyer Tax Credit
The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009. In November 2009, the tax credit was extended until April 30, 2010, and expanded to give $6,500 to repeat home buyers.
The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.
Guidelines for Home Owner Tax Credit Bill Signed into Law November 7, 2009
| FEATURE |
Jan 1 – November 30, 2009
Rules as enacted
February 2009 |
November 7 – April 30, 2010
Rules as enacted
November 2009 |
First-time Buyer
Amount of Credit |
$8000
($4000 married
filing separate) |
$8000
($4000 married
filing separate) |
First-time Buyer
Definition for Eligibility |
May not have had an interest in
a principal residence for 3 years
prior to purchase |
Same |
Current Homeowner
Amount of Credit |
No Provision |
$6500
($3250 married
filing separate) |
Effective Date
Current Owner
|
No Provision |
November 7, 2009 |
Current Homeowner
Definition for Eligibility |
No Provision |
Must have used the home sold
or being sold as a principal
residence consecutively for 5
of the previous 8 years |
| Termination of Credit |
Purchases after November 30,
2009.
(Becomes April 30, 2010 on
Date of Enactment.) |
Purchases after
April 30, 2010 |
| Binding Contract Rule |
None |
So long as a written binding
contract to purchase is in
effect on April 30, 2010, the
purchaser will have until
July 1, 2010 to close. |
Income Limits
(Note: Increased income
limits are effective as of
date of enactment of bill) |
$75,000 – single
$150,000 – married
Additional $20,000 phase out |
$125,000 – single
$225,000 – married
Additional $20,000 phase out |
Limitation on Cost of
Purchased Home |
None |
$800,000
November 7, 2009 |
| Purchase by a Dependent |
No Provision |
Ineligible
November 7, 2009 |
| Anti-fraud Rule |
None |
Purchaser must attach
documentation of purchase to
tax return |
Who is eligible to claim the tax credit?
1) First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before April 30, 2010. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.
2) REPEAT and move up buyers are eligible for up to $6,500.
When is it effective?
Immediately. Purchase agreements must be signed by April 30, 2010, and closings must be final by June 30, 2010
What is the 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 homeownership history of both the home buyer and his/her spouse.
For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
If I was an existing home owner who purchased a home earlier this year, will I qualify for the tax credit for existing home owners?
NO. There was no "grandfather provision" in this bill. It applies to purchases going forward only. If you already closed on a home purchase, you do not qualify for the tax credit.
Can I keep my current house as a rental and still qualify for a new purchase tax credit?
NO. You must sell your existing home.
Does $6500 for repeat buyers apply to any home purchase, regardless of price?
NO, If the home price is between $65,000 - $800,000, you will be eligible for $6500. If under $65,000 the amount will be reduced to 10% of purchase price.
Where do I find homes that qualify?
All homes qualify. You can search the largest listing database of home for sale online for FREE, track your favorites, eliminate seeing the same home over and over, control the price range, neighborhood search, foreclosure listings, even sold homes, and not be bothered by a realtor on all this web site. Search available only for properties in Minnesota and Western Wisconsin. Searching homes for sale is now easier than ever before. Begin searching
I've heard the first time home buyer tax credit can be used for down payment? Is that true?
YES, but be careful in understanding this. The tax credit CAN be used on FHA Loans to INCREASE your down payment, cover closing costs, or buy down your interest rate with discount points. You MUST still provide the your initial 3.50% down payment and you have to get a short-term bridge LOAN from someone to implement this strategy.
BUT WAIT: While this "options" sounds like a good idea, once you look into it, it doesn't pass the smell test!
 At this time (May 31, 2009) we still need to see how the lenders and banks respond and roll this out to actual Main Street home buyers. We also have to see how the ‘bridge loan' companies respond to this and how they will implement this. We don't yet know who is going to lend this short-term money, where is it coming from, how much are they going to charge for the loan, or how to do you get approved? These and more questions all need to get answered before anyone gets too excited about this news.
While the Realtors may be talking to you about this, don't get too excited, as nothing from Washington is this easy! Please read the actual Mortgagee letter (instructions to lenders) from HUD about using the first time home buyer tax credit for down payment, then talk to us.
We also suspect that the $8000 "loan" won't come cheap and that most first time home buyers will end up better off not having anything to do with this "option"
 How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000 for first time buyers. $6,500 for repeat buyers.
Are there any income limits for claiming the tax credit?
Individuals with annual incomes up to $125,000 and joint filers with incomes up to $225,000 qualify for the full credit. Individuals with incomes up to $145,000 and joint filers with incomes up to $245,000 qualify for reduced credits.
What is "modified adjusted gross income"?
Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.
To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.
If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.
How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.
How do I claim the tax credit? Do I need to complete a form or application?
Participating in the tax credit program is easy. 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 69 of their 1040 income tax return. No other applications or forms 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.
What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.
I read that the tax credit is "refundable." What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.
For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).
I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?
Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.
Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.
In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.
Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.
I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.
Is a tax credit the same as a tax deduction?
No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.
A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.
I bought a home in 2008. Do I qualify for this credit?
No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.
Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?
Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the down payment.
Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.
Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies have introduced programs that provide short-term credit acceleration loans that may be used to fund a down payment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.
If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.
Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.
For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
Yes. If the applicable income phase out would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.
But time is of the essence for buyers who want to take advantage of this opportunity. Only homes purchased on or after January 1, 2009 and before April 30, 2010 are eligible.
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