If you have gone through—or are considering—a divorce, take a close look
at the issues involving your credit. Pay attention to the status of your
credit accounts. If you maintained joint accounts during your marriage,
it is important to continue to pay the regular required payments. As
long as there is an outstanding balance on your joint account, both you
and your spouse are responsible for payment. Generally, any debt
incurred by your spouse is also your responsibility, regardless of whose
name is on the account.

If you are contemplating separation or divorce, you may wish to contact
your creditors in writing to ask that they close your joint accounts (or
accounts where your spouse is an authorized user). The creditor cannot
close a joint account because of a change in marital status, but they
may close a joint account at either spouse’s written request. The
creditor does not have to change a joint account to an individual
account, and may ask you to reapply for a credit account as an
individual and then, on the basis of your application, extend or deny
you credit.

Consulting an attorney regarding these sensitive matters is always prudent.

Look out for more of my Information for Life

Sincerely,

*Tim Barlow*

This past November, Congress elected to expand the home buyer tax credit to repeat buyers after seeing the success the temporary financial incentive had on the housing market and overall economy. As a result, current homeowners who will have lived in their home for 5 consecutive years out of the last 8 may now be eligible to receive a $6,500 tax credit.

“The expanded tax credit offers a great financial opportunity for existing homeowners, particularly those looking to trade up,” said James M. Weichert, president and founder of Weichert, Realtors, one of the nation’s largest independent real estate companies. “Not only can you receive a large sum of money from the government, you’ll also likely purchase your next home for less money and at a lower interest rate than you could have in years past or years to come.”

To qualify for the tax credit, the repeat buyer must have signed a binding contract by April 30, 2010 and close on the home by June 30, 2010. Tax credit eligibility is subject to income limits, $125,000 for single buyers and $225,000 for couples. In addition, the sale price of the home being purchased can not exceed $800,000.

There is no requirement that existing homeowners must have sold their home to be eligible for the $6,500 tax credit. However, Weichert encourages existing homeowners who want to benefit from this incentive to move quickly, particularly those who prefer to first sell their current home before purchasing a new one.

“Typically, it takes three months or longer to sell a home. That’s why it is critical repeat buyers put their home on the market right away. Otherwise they might not leave themselves enough time to both secure a buyer for their current house and find a new home by the April 30 deadline,” added Weichert.

This was widely welcomed by home buyers, sellers, and realtors alike. But at the same time, it has been a frustration to some home-buyers that they could not use this tax credit as part of their down payment for FHA loans.* The tax credit could not be used for any purposes in obtaining a loan, including a minimum down payment of 3.5% from other sources.

Recent changes have been announced by the Secretary of the Housing and Urban Development (HUD), which are intended to help with this situation. This new FHA rule allows the tax credit to be used as an additional down payment for other closing costs incurred in the process of purchasing a FHA loan. It still does not include the 3.5% down payment, but the contribution towards closing cost could help secure a lower the interest rate.

Furthermore, there are still other issues to be worked out with the scenario of using the tax credit towards any down payment or closing costs. Tax credit would normally be claimed by tax payers “after the fact” of home purchase on their income tax returns. IRS is not intending to pay out any money to anyone ahead of time. It has been proposed that buyers obtain a short term second loan for the amount of the tax credit and pay off this second loan with the income tax refund check. However, IRS is not willing to send the refund check to anyone other than the tax payer. That is a catch 22 situation because buyers could very well spend the refund money going on a vacation and not pay off this loan. There are no lenders at this time willing to fund this second loan without being assured that it will be paid off.

* The FHA is an institution, set up in 1934, which insures the lender’s loans, allowing the buyer to receive lower down payments, lower closing costs, and easier credit qualification. The process of purchasing an FHA insured loan includes rigorous background checks of your income, employment, and credit. Buyers who do not meet the qualifications would have to resort to seller-funded down payment assurance programs, which have been a questionable necessity in the past.