mortgage

Tax credit rewards homebuyers

Happy asian family cheering in front of home
Highlights
  • The binding-contract deadline to purchase a new home is April 30, 2010.
  • The new home must be occupied as a principal residence for 36 months.
  • Homeowners needn't sell their home to take the tax credit.

Homeowners who were excluded from the federal first-time homebuyer tax credit may have a second chance for a bite at the apple now that the credit has been expanded and extended. As of Nov. 7, 2009, current or recent homeowners who buy a new home can qualify for a tax credit of 10 percent of the purchase price, up to $6,500.

The expanded homebuyer tax credit is intended for "people who diligently have been homeowners and who may be struggling to hang on and need to move down or who are in a position where they could move up because there are some great buys, but they just can't quite do it," says Allyson Bernard, owner of Real Estate Professionals of Connecticut.

Rules and tips for repeat homebuyers:

1. Homeowners don't have to sell their current or former principal residence to take the credit. That home can be rented out, occupied by friends or family members, or even left vacant. But they must enter into a binding contract to purchase a new home on or before April 30, 2010, and they must close that deal on or before June 30, 2010.

Those deadlines might be a challenge for buyers who need to sell their current home before they can buy another one, says Ann Pettijohn, a broker at Oaktree Realtors, in Orange, Calif.

"It takes a little longer to sell a property now. They ought to be thinking about that, so they can get their house into escrow, so they can feel confident to go out and put an offer on another one," she says. "They need get their house on the market, price it right and have it in excellent condition."

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2. Homeowners who owe more on their mortgage than their home is worth should be aware that lenders typically take many months to approve a short sale, in which the lender agrees to accept less than the total amount owed. Consequently, homeowners who need to arrange a short sale before they can buy another home may not be able to meet the deadlines for the homebuyer tax credit.

3. Buyers must occupy their newly purchased home as their principal residence for at least 36 months. If they move out sooner than that, they'll have to repay the entire tax credit to the federal government when they file their tax return for the year in which they vacate the home.

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