From The IRS : The First-Time Homebuyer Credit Form

From The IRS : The First-Time Homebuyer Credit Form

As part of the American Recovery and Reinvestment Act of 2009, the IRS has officially released Form 5405 -- better known as the First-Time Homebuyer Credit Form.

True to tax code standards, the 10-field form is accompanied by 3 pages of instructions.

Form 5405 is a helpful, go-to resource for home buyers with questions about the tax credit.

For example, the form distinguishes tax consequences for homes bought in 2008 versus 2009, and clearly defines the term "first-time home buyer".

In addition, Form 5405 highlights the math behind the tax credit. In general, the First-Time Homebuyer Credit is equal to the lesser of:

• $8,000 for homes bought in 2009
• 10 percent of the home's purchase price

Married couples filing separately are entitled to half of the expected credit, and homes sold within 3 years are subject to a credit repayment in the year the home ceases to be the "main home".

Form 5405 is a comprehensive reference. However, be sure to check with your accountant for specific questions about your personal returns and how the First-Time Homebuyer Credit may impact your finances. There is no substitute for professional, paid advice.

Sharing Your Credit Card Balances Can Lower Your Mortgage Rates

Sharing Your Credit Card Balances Can Lower Your Mortgage Rates

Typically, higher credit scores get lower mortgage rates and access to a wider array of mortgage products.

Extent of Indebtedness comprises 30% of a credit score and is the second largest component in the credit scoring model. In plain-speak, Extent of Indebtedness is: "How close is this person to maxing out his cards?"

The ideal percentage of credit balance to credit limit is around 35%. Anything over 70% can be hazardous.

If you are close to your credit limit on one or more cards, you can "trick" the agencies into improving your scores by moving high balances to other, "under-used" cards.

For example, let five cards at 10% of their credit limit receive portions of the balance from a 70% card.

"But my 70% card has a 2.9% introductory rate; the other cards are at 18% or more! What a waste."

That's okay -- just keep this advice in context. If you aren't applying for a home loan in the coming months, there are fewer reasons to try to boost your score and no reason to shift to your balance. I don't recommend increasing your cost of credit solely for a higher credit score.

However, if you need to get your scores up quickly, sharing credit card balances among all your cards -- even if the rate of payment is much higher -- can result in substantial savings on a mortgage month over month.

Are You Inadvertently Merging Your Credit Score With A Stranger?

A 2004 study showed that 4 out of 5 credit reports contained at least one error.

The errors were of various types with different implications. A quarter of the errors, for example, were of the "serious" nature; errors that could lead to a credit denial because of a false-reporting delinquency or collection.

A much larger source of credit scoring errors, though, was related to misreported personal data.

More than half of the mistakes on credit reports were found to be related to erroneous name spellings, incorrect social security numbers, and/or wrong addresses.

These types of demographical errors can damage credit scores in not-so-obvious ways:

1. The strong credit report of a "Jr." may mix with the weak credit report of a "Sr.", or vice versa
2. Credit accounts demonstrating strong payment histories may be omitted
3. Derogatory credit of like-named people can "merge"

To limit demographical errors, a person should apply for new credit using a consistent form of their name, and then use that form on every new application.

John A. Smith, Jr., for example, should always apply for credit using the name "John A. Smith, Jr.".

Short-cutting an application with "John Smith" can lead to a "mixed" credit report that combines the tradelines of multiple John Smiths. Especially because there is a John Smith, Sr., who likely lived at the same address at one time, and who may have a similar social security number.

Credit agencies do not discern between two similar sets of demographic data very well.

In the four years since the original study, it's not likely that the 80% error rate has improved, but by limiting demographical errors in our own histories, we can reduce the frequency and severity of the problem.