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A variant of this question was asked recently, and several commented that this is really a tax issue; accordingly, although I am following-up on several sources to get an answer, I decided to see if I could get any input from this message board. With that background, here's the situation:
We're looking at purchasing a home that is currently being rented. The lease provides that the landlord can terminate with 60 days notice in the event of a sale. Accordingly, if we cannot make the place our "primary residence" until 60 days after closing, will we, effectively, be disqualifying ourselves from the credit? Does the answer change if we refrain from collecting rent from the tenants for this period (and maintain some fiction that they are "guests" in our primary residence). Of course, under this scenario, we would be muting the economic benefit of the tax credit to the tune of the lost rental income.
Any thoughts -- perhaps the best option is to attempt to negotiate an end to the lease that coincides with or closely to our closing?
A variant of this question was asked recently, and several commented that this is really a tax issue; accordingly, although I am following-up on several sources to get an answer, I decided to see if I could get any input from this message board. With that background, here's the situation:
We're looking at purchasing a home that is currently being rented. The lease provides that the landlord can terminate with 60 days notice in the event of a sale. Accordingly, if we cannot make the place our "primary residence" until 60 days after closing, will we, effectively, be disqualifying ourselves from the credit? Does the answer change if we refrain from collecting rent from the tenants for this period (and maintain some fiction that they are "guests" in our primary residence). Of course, under this scenario, we would be muting the economic benefit of the tax credit to the tune of the lost rental income.
Any thoughts -- perhaps the best option is to attempt to negotiate an end to the lease that coincides with or closely to our closing?
Rule is pretty straightforward:
in contract by April 30th, closing by June 30th - primary residence, not living anywhere else, except maybe for occasional overrun of 2-5 days after closing while seller/tenants move out or you paint the house before moving in...
You can always close and give the seller up to a 60 rent-back. This is pretty standard in the lending instruments. The way it works is you go ahead and close. The seller rents back the property at your PITI (and then sublet's to tenant).
(I've also been working for almost 12 hours and am slightly brain-dead right now, but I can't think of a reason why this won't work).
Well, what defines primary residence? I'm not advocating doing something underhanded, but if the other options don't work out, you just need to provide proof that the home is your primary residence, it doesn't mean you actually need to physically occupy it.
When we applied for the credit we had to provide the HUD-1 statement, updated drivers license with the new address and a utility/insurance bill as proof. So, you could buy the home, allow the tenant to remain there until the lease is up and simply change your address and update your car insurance immediately and perhaps also transfer the utilities to your name. You now have proof that it is your primary residence and by the time you actually apply for the credit you should have utility bills in your name for proof.
Any thoughts -- perhaps the best option is to attempt to negotiate an end to the lease that coincides with or closely to our closing?
I would go with this option. You want to be able to walk through the house before closing to make sure everything is still the way it was when you went into contract. Also make the renter the seller's problem not yours. If they need to pay them some money to move out so be it.
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