Due to an influx of fraudulent tax credit refund claims, the Internal Revenue Service has been providing behind-the-scenes tax instructions to Certified Public Accountants and tax advisors on how to file for the extended First Time Home Buyer Tax Credit after November 6, 2009. And some of this guidance is catching Massachusetts first time home buyers unaware.

First, Massachusetts first time home buyers cannot file a 1040-EZ to claim the First Time Home Buyer Tax Credit nor can they file electronically. The IRS instituted this measure to halt fraudulent tax credit claims. As ridiculous as it may seem, the IRS never had a way to determine if someone purchasing a home was a first time home buyer or not and is in the process of creating auditing software to catch both previous and future tax filers who fraudulently try to claim the First Time Home Buyer Tax Credit.

Second, the IRS now requires that a signed copy of the HUD-1 Settlement Statement be attached to IRS Form 5405 which cannot be attached electronically (hence, no electronic filing allowed to claim the First Time Home Buyer Tax Credit).

Finally, the IRS is advising CPAs and tax advisors to expect an average 16-week turnaround time before their clients receive their tax refund. The IRS needs that time to audit the documents and may even issue a notice requesting further evidence to support their claim of the First Time Home Buyer Tax Credit. And yes, this new law allows the IRS to request further documentation for amended returns as well.

For some additional useful guidance from the IRS about the First Time Home Buyer Tax Credit, check out 10 Important Facts about the Extended First-Time Home Buyer Tax Credit and First Time Home Buyer Tax Credit.

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Stimulus provided by the Obama administration has been instrumental in creating the environment that has lowered Massachusetts mortgage rates, increased home sales and assisted distressed homeowners.

Uncle Sam Lends a Temporary Hand

Tick tock, tick tock. As Spring approaches, deadlines await two programs that supplied the heat directed at the housing markets.

Government programs in the housing and interest rate arenas are slated to end in coming months. The time to take advantage of these programs is now. Stimulus programs from Washington have led to incentives for first time home buyers (FTHB) and move-up buyers, artificially low interest rates, and special programs that allow some homeowners with less than 20% equity to refinance and take advantage of lower Massachusetts mortgage rates without having to pay mortgage insurance on their new mortgage.

Infinite stimulus for the housing sector is not in the cards nor is it reasonable to expect. Deadlines are approaching on March 31st and April 30th. Whether you want to buy a home or need to refinance one, do not procrastinate. The best path is to investigate options now before you find that none are available to you.

First Time Home Buyer Alert

If you are a FTHB who wants to take advantage of the tax credit, think two words. GET BUSY. The tax credit of up to $8,000 is set to expire and Congress has made it clear that they will not extend this program again. Homes must be under contract by April 30th and the closing must occur on or before June 30th. With real estate closings taking as long as 60 days, according the National Association of Realtors, you need to get under contract shortly if you want to take advantage of the tax credit.

Home prices are down significantly across the country from their high points the past few years. However, median home prices have started to come up from their low point last year. If you have been waiting for home prices to decline further, perhaps you should not. Great opportunities are available but many real estate agents report multiple contracts being offered on hot properties. If you wait, you may be disappointed.

Massachusetts Mortgage Rates Are Great – NOW!

Interest rates dipped recently to near the lowest points ever recorded. As reported by Freddie Mac, Massachusetts mortgage rates for conforming loans approached 5.00% for a 30 year fixed rate and below 4.50% for a 15 year fixed rate with additional fees paid to obtain these rates. Rates for FHA, VA, and USDA Guaranteed loans typically offer slightly higher rates.

There is one reason that home loan rates are as low as they are. Last November the Federal Reserve announced a program to purchase up to $1.25 trillion in mortgage backed securities. This effort lowered rates to the lowest level of all time and has kept rates, according to Freddie Mac, below 5.50% last year compared to rates as high as 6.48% in 2008 for a 30 year fixed rate.

This program was slated to end December 31st of this year but in September’s Federal Open Market Committee meeting, it was announced that the program will be extended to the end of March 2010. However, the amount the Fed will purchase will not change.

Peter Hooper, chief economist at Deutsche Bank, told Bloomberg that a sudden end to the Fed purchases could cause rates to rise by a half to one percentage point. If you delay your financing, you could well see rates that are significantly higher than what is available today.

Upside Down – Refinance to 125% of Value

Even if you owe up to 125% more on your mortgage than your home is worth, you may be able to refinance. For example, if your home is worth $200,000 but you owe more than that, qualifying homeowners can now refinance up to $250,000.

The Making Home Affordable program was initially structured to accommodate homeowners with a new loan to 105% of their home’s value. This has recently been increased to 125%. There are requirements to qualify including whether your loan is currently owned by either Fannie Mae or Freddie Mac. You can find out if your loan is held by either agency by going to the Loan Lookup section of the Making Home Affordable web site.

According to First American Core Logic, more than 15.2 million homes had negative equity as of June of last year. This represents nearly 33% of all mortgaged properties across the country. Where in the past, being upside down on your loan would have precluded your ability to seek relief, you now may have an opportunity.

What Now?

With incredibly low interest rates and current stimulus programs available to help many, explore the options that may best suit you but do so quickly. However, options that exist today may not be available to you should you wait.

Geof McLaughlin, better known as The Massachusetts Mortgage Broker, is a nationally acclaimed mortgage professional committed to educating and empowering consumers about all things mortgage through his popular Massachusetts Mortgage Broker blog.

Geof is a top loan originator for one of the country’s leading mortgage companies, Mortgage Master Inc, with a proven reputation of offering its clients the best Massachusetts mortgage rates and lowest closing costs. He can be reached directly at 508.656.0055 or at geof@MAMortgageBroker.com.

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