My husband and I have an FHA loan on our current home with the 2008 first time home buyer credit. Can we rent our home after paying back to credit?

Asked by Maia Poling, Minneapolis, MN Sun Mar 11, 2012

we would like to rent to home in order to buy a new home. We have heard that with an FHA you can rent the home after living in it for one year( we have lived in the home for over 3 years), but we called our lender ( at Wells Fargo) and one person said we could not rent, well someone a few hours later said we could. We also spoke to someone at FHS directly, who said we could rent. If we pay back the 2008 first time home buyer credit, can we then rent the home?

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Mike Kelcher, Agent, Burnesville, MN
Sun Mar 11, 2012
The first time homebuyer credit was a credit on your Federal Income tax return. So your question is really a tax question and should be addressed to a tax professional....which I am not. However, I believe that it's a fairly simple matter to solve if you'd like to rent your property.

The 2008 tax credit was different than the similar first-time homebuyer tax credits of 2009, 2010, etc. The 2008 homebuyer credit is needs to be repaid as an additional tax on your federal tax return for fifteen years, starting with your 2010 tax return. If you received the maximum $7,500 credit, this works out to annual repayments of $500 per year. You could think of this tax credit as an interest-free 15-year loan. The credit will also need to be repaid in full if the taxpayer sells the house within the fifteen-year repayment period.

The credit also needs to be repaid in full if within 36 months of buying the property, the home is no longer the taxpayer's primary residence. However, since you've lived in the home as your primary residence for over 36 months, you merely have to continue paying your $500 a year, even if you rent it out and it is no longer your primary residence.

The way I believe it works is like this....most likely, (If you received the maximum $7,500 credit), when you filed your 2010 tax return, you repaid $500 of your credit. The same thing with your 2011return...if you've filed already. So, your current "balance" is $6500. I believe all you have to do is continue to pay $500 a year until your 2025 return.

If you mention what I've just written above, to 10 people, 9 will claim I'm nuts, but those 9 might think that the tax credits of 2008, 2009, and 2010 were all the same....they aren't.

Here's a link to more information.

My advice to you is to talk with a tax professional, but I'm pretty sure the way it works is as above.
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Chris Block, , Saint Paul, MN
Mon Mar 12, 2012
Good Answer Mike. I want to just reiterate that you can not go FHA twice in most circumstances. It is actually 2 years of rental income before it can be considered. I believe it is a year if you have enough equity in the home, which I am guessing no.

The city of Minneapolis is expensive, and on top of your license I would suggest creating a LLC and puting this property in it. It is a smart decision to protect yourself.

Absolutely it is a great time to rent, and I hope you at least work with a good leasing company that can go over all of this with you. I would not advise trying to do this on your own. That is of course unless you are a season pro:)

I don't work Minneapolis, so if you are buying there I can't help you. But I do know good Realtors who do work that area. If you are looking into the North suburbs that is my area. If you would like a referall or just have some more questions feel free to contact me directly here on Trulia. I have had 2 buyers over the last two years that had to go through this, so I have the right team in place that I can point you towards.

0 votes
Susan Hoffla…, Agent, Shoreview, MN
Mon Mar 12, 2012
Hi, Maia!
I see you've received adequate answers about the tax credit issue. As for your mortgage, I believe the 1 year rule applies for you renting out the property. Don't quote me, I'm not a lender. I would seek advice from several professionals to find out the definitive answer on that.

You say you spoke with someone at FHS. Does that mean FHA? If so, I would get whatever they are telling you in writing before moving forward. Or ask them where that information can be found in writing, just to make sure you're not breaching any tenet of your paper work with FHA or Wells.

Many homeowners are making the same choice you're making right now so they don't have to take a major hit on their current property. Just know that, the income you will potentially be receiving from your current property cannot be considered "income" for qualifying for your new mortgage until you can prove rental income for 1 year.

Good luck, Maia!!
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Elizabeth Fu…, Agent, Wayzata, MN
Sun Mar 11, 2012
Your mortgage note should specify some of the conditions; your original loan officer should also be able to help you. Good luck with this; even if you have to pay some fees to get this home into an investment status, it may be a very good choice. The rental market is strong with few vacancies in most areas. Since many are unable to buy a home and quite a few people having lost their ability to buy again due to walking away from their property, you may be positioning yourself very well, benefitting from the current situaltion and actually strengthening your credit and income potential at a time when many are letting their monetary life decline. Good thinking! Liz 612-986-4105
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Lisa Staplin, Agent, Eagan, MN
Sun Mar 11, 2012
According to the IRS website, you need to repay the credit if the home is no longer your main residence. If you choose to repay the credit, you should be able to rent your home without penalty.

Please keep in mind that if the home is in the City of Minneapolis, the city will charge you a fee of $1,000 for the inspection required to convert the home to rental property. This is in addition to the actual rental license.

We can help you through this process, and perhaps give you some advice if you're first-time landlords.
Let me know if you have any other questions, I'm here to help!
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Joel Friday, Agent, Coon Rapids, MN
Sun Mar 11, 2012
I think the credit called for you to live in the home for 3 years minimum. Once that occurs, then you can do want you want with the home without penalty. Double check with your accountant to make sure as I am not an accountant, just going off what I heard. Give me a call if you have any questions regarding buying your next home or renting your current one.
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