FAQs Regarding U.S. Homebuyer Tax Credit Extension, Expansion

From the National Association of REALTORS, here are some of the most frequently asked questions on the changes to the Homebuyer Tax Credit signed into law on November 6 by President Obama.

QUESTION: Existing homeowner credit: Must the new house cost more than the old house?
ANSWER: No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6,500 credit.

QUESTION: I am a first­time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits by the time I go to settlement, will I be eligible for a credit?
ANSWER: Yes. The new income limitations went into effect as soon as the President signed the bill. The income limit and other eligibility rules will look to your status as of the date of purchase, which is the settlement date. So when you go to settlement, you should be eligible for the credit (or a portion of the credit if you're within the phase­out range).

QUESTION: I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a non­negotiable price of $825,000. Will I be able to use any of the $6,500 tax credit?
ANSWER: No. The $800,000 cap on the cost of the purchased home is firm. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.

QUESTION: I owned my home for 10 years, but sold it two years ago and have been renting since. If I purchase a home, will I be eligible for the $6,500 tax credit if I meet all the other eligibility tests?
ANSWER: Yes. Because you lived in the home for more than five consecutive years of the previous eight you will qualify for the $6,500 credit. For example, Say John and his wife bought a home in 2000 and lived there until 2008, when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for five consecutive years out of the last eight years. The keyword here is “consecutive." As long as he lived in that house for five years straight, what he did in the last three years doesn't affect eligibility.

QUESTION: I am an eligible first­time homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?
ANSWER: You do not have to close before December 1. Now that the legislation has been signed, it will be as if the November 30 date had never existed. Therefore, so long as the binding contract is in place by April 30 (and closes by July 1), the purchaser will be eligible for the credit.