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USDA: Zero down loans for buyers

For homes in Escalon, Lathrop & Ripon

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POSTED May 1, 2009 1:45 a.m.
You can buy a $170,000 home with nothing down, have a payment of less than $980 a month, have the seller possibly contribute up to 6 percent of the selling price toward closing costs and get an $8,000 tax credit from the federal government.

If that sounds like a come on or a misprint, guess again. The same people who grade your meat – the United States Department of Agriculture – offers USDA Guaranteed Rural Development Loans for 100 percent financing with no monthly private mortgage insurance. To make things better, as of April 20 they changed income limits which means one to four people in a household allows an income of $70,750 while five to eight is $93,400.

Besides the income limits - which are liberal by most programs – the only other caveat is the home has to be located in an incorporated city under 20,000 residents. That means Lathrop, Escalon and Ripon qualify.

That $170,000 example was using a newer home built in the past decade in the Stonebridge neighborhood in northeast Lathrop that is listed for $169,900. The home at 711 Limestone Ave. has five bedrooms and three bathrooms with 1,966 square feet.

If you can qualify for a FHA loan and meet the income perimeters and the home is located in areas that meet the geographic limitations you can indeed get the house deal of the century.

These are fixed rate 30 year loans. No low introductory rates. No balloon payments. And arguably the best of all, no mortgage insurance that can add anywhere from $30 to $60 a month on to the price of a home.

Toss in the fact you get $8,000 in the form of a tax credit – which is actual dollars as opposed to a deduction that reduces taxable income – the financial advantages over renting are enormous.

The stimulus plan that President Obama signed into law contains a new $8,000 tax credit for qualified first-time home buyers. And, unlike the $7,500 tax credit from last year, this credit does not have to be repaid to the government, as long as you stay in the home for at least 36 months after the purchase date.

A tax credit is much more valuable than a tax deduction. A tax credit reduces dollar for dollar the amount of tax you owe. A deduction merely reduces the amount of your income that is taxable. This means the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset.

First-time buyers or anyone who hasn’t owned a home in the three years prior to a purchase of a primary residence may qualify for a tax credit of up to 10% of the purchase price or $8,000, whichever is less. To qualify for the full credit, the buyer’s modified adjusted gross income must be less than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. Partial credit is proportionally reduced for incomes under $95,000 (single) or $170,000 (married). For married taxpayers, the homeownership history of both the home buyer and spouse are taken into account. This means if you or your spouse has owned a principal residence in the last three years, neither you nor your spouse qualifies for the credit.

The $8,000 tax credit is available for qualifying home purchases made from Jan. 1, 2009, until Dec. 1, 2009. This is not a typo. To receive the credit you must purchase a qualified home before Dec. 1, 2009 – not the end of the year.

You cannot use the credit as a down payment. To receive the credit, you must purchase a qualified home first and then claim it on either your 2008 or 2009 taxes. If you make a qualified purchase after April 15, or after having already filed your 2008 taxes, you and your tax professional can submit an amendment to your return. To claim the credit, use form 5405.
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