Mortgage Market Update

Opes Advisors

Recently I’ve had a lot of questions about the California tax credit, so I thought I’d send along this reminder for you to forward to your clients as appropriate.

Beginning May 1, new California legislation took effect that provides a tax credit up to $10,000 to residents who buy their first home or a newly constructed home.

This legislation has allocated $200 million to fund tax credits for qualified home purchases; $100 million is for buyers of new, unoccupied homes and the other $100 million is for first time buyers of existing homes.

The tax credits are available to home buyers on a first-come, first-served basis. This is an incentive for buyers to act now (as a reminder, the $100 million allocated for last year’s new home buyer program was depleted in just four months).

A notable feature of this year's legislation is that buyers of newly constructed homes may choose to reserve a tax credit prior to the close of escrow. This will become important as California nears the $100 million cap for homes that may not close escrow before the cap is reached. Buyers that are applying for the First-Time Buyer Credit (purchasing existing homes) will not be able to reserve the tax credit before escrow closes. Details about how to reserve the tax credit can be found here.

Below are some highlights of the new tax credit program:

· Buyers of existing homes must close escrow between May 1, 2010 and December 31, 2010.

· Buyers of new homes can reserve their credit by entering into an enforceable contract between May 1, 2010 and December 31, 2010. They must file the proper paperwork with the tax board and close escrow by August 1, 2011.

· First-time home buyers are eligible whether they buy a newly built or an existing home.

· Current homeowners looking to trade up must buy a newly built home in order to receive the tax credit.

· If a taxpayer qualifies for both tax credits, the law specifies that that the New Home Credit be applied (only one tax credit is allowed per taxpayer).

· The tax credit is worth up to 5% of the purchase price of the home, or $10K, whichever is less.

· The credit will be allocated evenly over three years. If a buyer qualifies for the full $10,000 tax credit, they’ll get up to $3,333 per year. They will need to consult with their CPA for details and eligibility as related to their specific situation.

· The buyer cannot be a dependent and the home purchased cannot belong to a relative.

· The buyer is required to live in the home for at least two years or forfeit the credit (i.e., repay it to the state).

As you can see rates are even more amazing than they were last week. Stay cool!