We bought our home about 7 months ago and we are entitled to the 8k tax credit (we’re still waiting on the check). Anyway, my husband has a potential job opportunity in a different city.
Here are my concerns:
Can we rent our primary house out? If we rent it out, do we have to repay the 8k back?
If we rent this house out:
Can we buy another home in the city where my husband will be working?
I’m really lost and don’t know what I can and can’t do with this 8k credit. I don’t want to sell the house, I want to hold onto it and rent it out. And then buy a primary house in the new city. Is that possible? Thanks.
Yes, you will have to repay the tax credit. One of the requirements for the first time homebuyers tax credit is that you occupy the home for three years as your primary residence. If the property ceases to be your primary residence before the three year recovery period expires, you will have to repay the tax credit in full. The amount you owe will be added to your income tax liability and become payable when you file your next tax return.
If we rent this house out:
Can we buy another home in the city where my husband will be working? Is that possible?
Most definitely possible. There is no limit to the number of homes you can own. Getting financing for your next home will depend upon your ability to meet the lender’s income and creditworthiness standards to qualify for a new loan. Unfortunately, since you are already a homeowner, you won’t qualify for the first time homebuyer tax credit for your next home.
Just as a side note, the lender will probably require that you refinance your original residence as it will no longer be owner occupied O/O. N/O/O Non owner occupied loans are riskier and carry higher rates and lower LTV’s. Your insurance will go up as well.
MDhaas and NeedHelp,
I’m confused–I’ve never heard of an owner having to re-finance their owner-occupied residence because their plans changed. If the husband has to move for a job, then they just need to rent it out, and continue making the payments.
I’ve done this several times. Life happens.
Millions of people have converted their residences to rentals. Is your posting something new?
Also, their insurance cost should go DOWN, not up, when they convert it to an OLT (Owner, Landlord, Tenant) Policy.
NeedHelp, I would get professional help (CPA) on figuring out if you can keep some months worth of that $8,000. The rest MUST be returned or you are committing fraud against the US government. You don’t want to do that. Do not spend that money!
I was starting to get really stressed out! I mean we bought the house assuming we would be there for several years. Then my husband gets a chance for a better job opportunity.
I just want to rent our now primary residence out.
Here’s what I found about the 8k tax credit (copy and pasted it from www.irs.gov:
Repaying the Credit
Q. When must I pay back the credit for the home I purchased in 2009?
A. Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009 or early 2010. The obligation to repay the credit arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence.
Q. If I claim the first-time homebuyer credit for a purchase in 2009 or early 2010 and stop using the property as my principal residence before the 36 month period expires after I purchase, how is the credit repaid and how long would I have to repay it?
A. If, within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full amount of the credit is due at the time the income tax return for the year the home ceased to be your principal residence is due. The full amount of the credit is reflected as additional tax on that year’s tax return. Form 5405 and its instructions will be revised for tax year 2009 to include information about repayment of the credit.
Now since I will keep this house as a rental, can I buy another house in the new city? Won’t my debt-to-income ratios be scary to a lende? Thanks.
This is not something new. If you do not live in a residence and rent it out is officially a NOO property. The “millions” of people you mention are simply “temporarily” circumventing the system.
When it comes to time to refinance, the rules/requirements will change.
If the lender was to catch wind of issue, they could also call the current note due in full.
Obviously, NOO properties are riskier, hence the reason for higher rates, stricter programs.
If there wasn’t a difference, Why would Lenders offer NOO loans. Everyone could just live in a home and then move.
It depends on the lender, but you can typically count 75-80% of the rental income in your debt to income ratio. So, at 75%, if you’re renting your place for 133% of what you owe, it’s a wash, since 133% *.75 = 100%
The paperwork that I read on our son’s house (he just got the $8,000-took about 8 months) said something about months being prorated if you leave/rent/sell before the 3 years.
I believe each batch of this stimulus money has its own rules. The first batch of people have to pay it all back. The second don’t, providing they live there 3 years.
Thanks for advising us, NeedHelp. That is why this site is so useful to readers.
I still have never heard of anyone needing to refinance because they had to leave their owner-occupied home before the 30 years was up.
I will have to check with our CPA to see what our state has to say about paying back the 8k.
Thanks for all the great information so far from everyone. I have 3 or 4 property management companies I can interview when I rent out the house. Now all we are waiting on is when and if my husband gets this job. I’m running out of patience…
Typically all mortgages have a clause in them when OO stating you can not rent the home and if the lender finds out they can request the home be paid off in full or refi. However there is no mortgage police in this field to know what your doing. However your insurance company is a nother issue if a problem arises such as fire, theft or someone getting hurt on the property and a claim is filed.
I too would be very surprised if there were such a clause and if present it were enforceable. If anything I am pretty sure that the current case law would prevent the enforcement of such a clause. Imagine the turmoil this would cause in such cases such as when interest rates go higher. Banks would have an incentive to investigate and harass borrowers who borrowed at the lower rate so that they could refinance them at the new higher prevailing rates and also collect related fees.
Owner occupied loans are valid as long as the borrower fully intended to live in the property at the time of signing. After that, things change in life.
That aside no bank will bother enforcing such a clause on a current mortgage these days, even assuming it were valid. Doing so would likely add a foreclosure to their books and they have enough of those.
If you’re blatantly defrauding the system by taking out OO loands under NOO loan criteria, then I’d expect for a bank to rip you a new one. However, situations do arise, as mentioned, and I highly HIGHLY doubt a bank will call the entire note if you lived at a place for more than 2 years and decided to rent it out so long as they are receiving their check in the mail. Of course this isn’t something I’d recommend doing, but I don’t see a bank intervening if you have one OO house that was not OO so long as they were receiving their mortgage payment. Banks lend money, and when they have to spend time and money calling notes that they know will not get paid, they are losing resources. Banks do NOT want to sell homes unless it’s absolutely essential.