Tax Incentives for Real Estate Home Buyers and Sellers
Tax and Loan Tips for
Real Estate Investors in Silicon Valley
Here are a few helpful links as well as information about tax incentives, deductions and housing loan programs that all home buyers, including first time home buyers, should keep in mind when embarking on a quest to purchase a home in Silicon Valley.
Please remember that some of the key tax deductions related to home ownership include:
For a more comprehensive list of tax deductions, here is a useful link.
- Mortgage interest and costs
- Cost of improvements (repairs, upgrade)
- First Time Home Buyers credit
- Energy Tax Credit (e.g. energy efficient heaters, doors, windows, etc)
You can also check out this useful website which outlines local down payment help programs in your area.
The Federal Housing Administration (FHA), a section of the US Department of Housing and Urban Development (HUD) can help you insure your loan, which means higher loan amounts (up to $625,500), lower down payments (as low as 3.5% of the home purchase price), lower closing costs & fees (can be included in the loan) and easier qualifying criteria.
FHA’s 203(k) Loan Program allows home owners to purchase a property including the cost of its rehabilitation. So, if you are not afraid of buying a fixer upper and/or a home in need of repairs but do not have the cash to pay for the renovation, do not forget to ask your loan officer about this program. Please note that real estate investors are no allowed to use the 203K Loan Program.
Currently, The Federal Housing Administration allows borrowers to cancel private mortgage insurance coverage, which is mandatory for loans contracted with less than 20% down payment, under two conditions:
- Borrowers’ loan-to-value ratio reached 78 percent of the original loan balance;
- Borrowers have made payments for five years.
Starting June 3, 2013, FHA will require borrowers to pay the premium as long as the loan is in force. In other words, the only way to stop paying PMI is for the borrower to refinance or otherwise pay off the loan.
On June 3, 2013 as well, FHA also changed its Annual Mortgage Insurance Premium (MIP) Cancellation Policy. This change will stop many homeowners from losing their right to cancel the annual MIP. You can read about these guidelines on the HUD portal.
On August 26, 2014, the Federal Housing Administration (FHA) issued its final rule to eliminate post-payment interest charges on FHA-insured single family mortgages. The policy change will prohibit mortgagees from charging borrowers interest on their home mortgages after a principal balance pay-off. The final rule will go into effect on January 21, 2015.
You can also review all FHA loan programs on the FHA website.
Fannie Mae & Freddie Mac Loan Programs
On December 4, 2014 Fannie Mae and Freddie Mac, announced new loan programs that could make it easier for well-qualified, first-time and lower-income home buyers to purchase a home. Both Fannie and Freddie will back mortgages with down payments of as low as 3 percent.
Fannie Mae “My Community Mortgage,” program is available to first-time buyers, and eligible homeowners who wish to refinance their Fannie Mae-owned mortgage but don’t qualify under the Home Affordable Refinance Program (HARP). Fannie’s program is available since December 13th, 2014.
Freddie Mac “Home Possible Advantage” program is open to first-time buyers and other qualified borrowers with limited down payment savings. Freddie Mac’s program will begin on March 23rd, 2015.Both programs require private mortgage insurance.
California Housing Finance Agency (CalFHA)
If this is your first home purchase ever, the First Time Home Buyers Program from the California Housing Finance Agency (CalHFA) is for you. The California Housing Finance Agency offer low interest rate first mortgage programs and a variety of down payment assistance programs to eligible first-time homebuyers. Here are the top 3 programs applicable to San Jose and Silicon Valley in particular:
- The CalHFA FHA Mortgage Loan Program, which is applicable to properties located in federally designated targeted areas. This program is designed for low and moderate income home buyers. Borrowers do not need to be first time home buyers.
- The California Home Buyer's Down Payment Assistance Program (CHDAP) is a deferred payment options with a simple interest rate subordinate loan. Low to moderate income first-time home buyers can use this loan to make a down payment and/or closing cost assistance up to 3% of the sales price or appraised value, whichever is less.
- The CalFHA Affordable Housing Partnership Program (AHPP). CalHFA has partnered with over 300 localities (cities, counties, housing authorities, nonprofit entities and redevelopment agencies) that offer local down payment assistance. This program allows borrowers to combine a Cal HFA first mortgage loan with down payment and/or closing cost assistance from an AHPP.
- The CalFHA Extra Credit Teacher Home Purchase Program (ECTP). The ECTP provides a deferred-payment junior loan for eligible teachers, administrators, classified employees and staff members working in county/continuation or high priority schools in California.
- The CalPLUS FHA program is a first mortgage loan insured by the Federal Housing Administration. The interest rate on the CalPLUS FHA is fixed throughout the 30-year term. The CalPLUS FHA is combined with a CalHFA Zero Interest Program (ZIP), which is a deferred-payment junior loan of 3.5% of the first mortgage loan amount, for down payment assistance.
- CalHFA’s ZIP Extra Down Payment Assistance Program. This new program is designed to reduce the amount of money needed to close on the purchase of a home for buyers who may not yet have the funds for a large down payment, closing costs, or even an upfront mortgage insurance payment. The new program will include an additional $6,500 on top of the 3 percent down payment it currently offers as part of its CalPLUS Conventional with Zero Interest Program (ZIP). The ZIP program provides 3 percent of the loan amount at 0 percent interest on a fixed-rate, 30-year conventional mortgage. The additional $6,500, ZIP Extra, will also be provided at 0 percent interest.
You can review all home buyers programs on the CalFHA website
City Of San Jose Home Buyers Programs
Closer to us in Silicon Valley, you may want to check out programs available to home buyers in the city of San Jose, CA.
You can review all programs on the City of San Jose Department of Housing website.
The most notable programs from the city of San Jose are The Teachers Home Buyer Program and the Extra Credit Teacher Home Purchase Program (ECTP)
Housing Trust Silicon Valley
If you live in Silicon Valley and you are a first time home buyer with low to moderate income, you should check out the loan programs offered by the Housing Trust of Silicon Valley which are as follows:
Please note that I am Certified by the Santa Clara County to help you with any of these housing programs if you qualify.
- The Purchase Assistance Loan Program (PAL) is designed to help low to moderate incomes families acquire foreclosed and abandoned homes or those at risk of foreclosure in the San Jose area only. The program offers a deferred second loan of 20% of the purchase price up to $50,000, providing home buyers have already secured a primary loan. This loan is a 30-year loan with an interest rate of 0%.
- GAP Assistance Program: This new housing program is intended to support low income first-time home buyers purchasing homes in Santa Clara County (SCC). The GAP is a 30-year loan with an interest rate of 3%. Since January 2015, the Housing Trust provides appointments for first time home buyers interested in this program.
- Mortgage Assistance Program (MAP): The Housing Trust of Silicon Valley has established the Mortgage Assistance Program to help home buyers finance their first home, condominium or town home. It is one of the three loan products currently available from the Housing Trust and is an amortizing 30-year second loan.
- Closing Cost Assistance Program (CCAP): This program has helped Santa Clara County's
teachers, engineers, nurses, cooks, and other qualified individuals and
families buy their first home in Santa Clara County by providing 3% of
the purchase price up to $15,000 towards the down payment, closing costs
or other transaction expenses associated with a home purchase. This loan
is due on refinancing or sale of the home or 30 years, with a 3%
deferred interest rate. No interest or principal payments are due during
the term of the loan.
Federal Tax Credits for Consumer Energy Efficiency
The following tax credit applies to both existing homes and new constructions whether it is a principal or a secondary residence : 30% of cost, with no upper limit until December 31, 2016, for the following items: Geothermal heat pumps, small wind turbines and solar energy systems.
The following tax credit only applies to an existing home which must also be the principal residence:
Regarding solar energy, effective
January 1, 2015, the Assembly Bill 1888:
- 30% of the cost, up to $500 per 0.5 kW of power capacity until December 31, 2016, for installations of fuel cells;
- 10% of cost up to $500 or a specific amount from $50–$300 for the following items: Biomass Stoves, Heating, Ventilating, Air Conditioning
(HVAC), Insulation, Roofs (Metal & Asphalt), Water Heaters (non- solar) and Windows
& Doors. Credits are available for homeowners of residential energy efficient property placed in service in 2012 or 2013, and in extended program between 2014 and 2016.
- Extends the sunset for a solar tax
exemption for new active solar energy systems on new construction.
- Extends the exemption through 2023-24,
and the sunset through January 1, 2025.
Specifies that this exclusion for the
construction or addition of an active solar energy system applies through the
2023-24 fiscal year, and remains in effect only until January 1, 2025.
For further information about tax credit for Energy Efficiency, click here.