Housing News Blog

Who is Eligible

• The $7,500 tax credit is available for first-time home buyers only.
• The law defines a first-time home buyer as a buyer who has not owned a home during the past three years.
• All U.S. citizens who file taxes are eligible to participate in the program.

Income Limits

• Home buyers who file as single or head-of-household taxpayers can claim the full $7,500 credit if their modified adjusted gross income (MAGI) is less than $75,000.
• For married couples filing a joint return, the income limit doubles to $150,000.
• Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit.
• Married couples who earn between $150,000 and $170,000 are eligible to receive a partial first-time home buyer tax credit.
• The credit is not available for single taxpayers whose MAGI is greater than $95,000 and married couples with an MAGI that exceeds $170,000.

Effective Dates for the Tax Credit

• First-time home buyers would receive a $7,500 tax credit for the purchase of any home on or after April 9, 2008 and before July 1, 2009. To qualify, you must actually close on the sale of the home during this period.

Tax Credit is Refundable

• A refundable credit means that if you pay less than $7,500 in federal income taxes, then the government will write you a check for the difference.
• For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $2,500 payment from the government.
• If you are due to receive a $1,000 tax refund from the government, your refund would grow to $8,500 ($1,000 plus $7,500 from the home buyer tax credit).
• Buyers can take the tax credit in their 2008 or 2009 tax return.
• If you purchased the home in 2008, the tax credit is taken on your 2008 tax return. If you buy in 2009, you have the option of taking the credit on your 2008 or 2009 tax returns.

Types of Homes that Qualify for the Tax Credit

• All homes, whether single-family, townhomes or condominium apartments will qualify, provided that the home will be used as a principal residence and the buyer has not owned a home in the prior three years. This also includes newly-constructed homes.

Payback Provisions

• The tax credit essentially serves as an interest-free loan to be repaid over 15 years.
• For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. However, the buyer doesn’t have to start repaying the credit until two years after the tax year in which the credit is claimed.
• If the home owner sold the home, then the remaining credit would be due from the profit of the home sale.
• If there was insufficient profit, then the remaining credit payback would be forgiven

RISMEDIA, August 12, 2008-Buying smart in today’s market got a little easier recently following the signing of the Housing and Economic Recovery Act of 2008 by President Bush. There are significant benefits aimed at helping buyers, such as a repayable first-time home-buyer tax credit. First-time buyers are important to the health of the housing economy because their home purchases help to stimulate sales up the price points. Through the home-buyer tax credit, buyers who are purchasing for the first time or who haven’t owned a property in the last three years can now qualify for a tax credit equal to 10% of their home purchase price, up to $7,500.

Further qualification requires that the home purchase be made between April 9, 2008 and July 1, 2009. The credit phases out if the buyer’s income exceeds $75,000 for an individual or $150,000 for a couple filing jointly and it must be paid back over a 15 year period in equal installments. The credit can be claimed on the buyer’s 2008 tax return even if the purchase is made in 2009 (it’s important to note that this is a tax credit and not a tax deduction).

Another component of the housing bill includes much needed FHA modernization which aims to adjust loan limits so that they are more in sync with current home values. The bill allows Fannie Mae and Freddie Mac to serve more home-buyers by raising loan limits in high cost areas above the standard conforming limit to 115 percent of the median house prices and up to 150 percent of the conforming loan limit.

The Housing and Economic Recovery Act is expected to play a critical role in strengthening the housing market and overall economy. The last time Congress passed legislation like this in the 1970s, the housing market saw a significant increase in activity. Using history as a guide, Lawrence Yun, chief economist of the National Association of Realtors believes the Housing Act could represent a boost of 10% in the number of homes sold.

The passing of the Housing and Economic Recovery Act marks the beginning phase of the next ten-year housing cycle in which prices in the more affordable markets will only continue to appreciate (affordable refers to homes priced at or below a market’s median housing price). Contributing to rising prices is population growth, the impact of Generation Y, inflation, and growth management. Homes in the more affordable price ranges in many markets have already adjusted and the new housing legislation will continue to boost this positive momentum. Increased sales in the more affordable markets will set a new foundation for housing, helping to stabilize the overall real estate economy.

AMERICAN HOUSING RESCUE AND
FORECLOSURE PREVENTION ACT OF 2008 

The "American Housing Rescue and Foreclosure Prevention Act of 2008" (H.R. 3221) was signed by President Bush on July 30, 2008. This measure provides mechanisms to help the troubled housing market as well as tighten lending practices and reform financial institutions. 

New Homebuyer Tax Credit - For qualifying home purchases after April 11, 2008 and before July 1, 2009, the Act provides eligible first-time homebuyers a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7,500 ($3,750 for married individuals filing separately). The credit phases out for individual taxpayers with modified adjusted gross income between $75,000 and $95,000 ($150,000-$170,000 for joint filers) for the year of the purchase. A taxpayer is considered a first-time homebuyer if he (or spouse, if married) had no ownership interest in a principal residence during the 3 year period before the purchase of the home to which the credit applies.

Reduced Principal Residence Exclusion for Non-qualified Use Periods - For sales after December 31, 2008, the principal residence exclusion will not apply to the extent gain is allocable to non-qualified use. Non-qualified use includes a period during which the residence is not used as a principal residence by the taxpayer or spouse. In general, the seller will be required to reduce the exclusion amount by a ratio the numerator of which is the period of non-qualified use and the denominator of which is the period the property was owned. Certain periods of non-qualified use are not counted including any period before January 1, 2009, any non-qualified use arising after a period of qualified use, and certain temporary absences. This new rule will further limit the ability of an investor/owner to convert an investment property into a principal residence and qualify for the full Section 121 exclusion.

Government Sponsored Enterprise (GSE) Reform – This provision creates an independent regulator to oversee the GSEs and increases conforming loan limits to the greater of $417,000 or 115% local area median home price (capped at $625,500). The increased loan limits will be applicable to loans originated after December 31, 2008.

Federal Housing Administration (FHA) Reform – Increases permanent FHA loan limits to the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlines processing for FHA condos; reforms the Home Equity Conversion Mortgage (HECM) program and the FHA manufactured housing program. The down payment requirement on FHA loans will go up to 3.5% (from 3%). The effective date is immediate upon enactment, but the new loan limits will be effective on December 31, 2008.

FHA Foreclosure Rescue – Develops a refinance program for homebuyers with problematic subprime loans. Lenders who elect to participate will write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. This program is effective on October 1, 2008.

Seller-Funded Down Payment Assistance – This codifies an existing FHA proposal to prohibit the use of down payment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by non-profits funded by other sources, churches, employers, or family members. This prohibition is effective on October 1, 2008.

Veterans Affairs (VA) Loan Limits – Temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.

Risk-Based Pricing – Puts a one year moratorium on the Federal Housing Authority using risk-based pricing. This provision is effective from October 1, 2008 through September 30, 2009.

GSE Stabilization – Authorizes the Treasury to, make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae will not fail.

Mortgage Revenue Bond Authority – Authorizes $10 billion in mortgage revenue bonds to refinance subprime mortgages.

National Affordable Housing Trust Fund – Develops a Trust Fund funded by a percentage of profits from the GSEs. In its first years, the Trust Fund would cover costs of defaulted loans in FHA foreclosure program. In later years, the Trust Fund will be used for the development of affordable housing.

Community Development Block Grant (CDBG) Funding – Provides $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes.

Low Income Housing Tax Credit – Changes the Low Income Housing Tax Credit program to make it more efficient.

Loan Originator Requirements – Strengthens the existing state-run nationwide mortgage originator licensing and registration system and requires a parallel HUD system for states that fail to participate. Federal bank regulators will establish a parallel registration system for FDIC-insured banks. The purpose is to prevent fraud and require minimum licensing and education requirements.

These are highlights of portions of the "American Housing Rescue and Foreclosure Prevention Act of 2008." To view the entire text of H.R. 3221, click here: H.R. 3221

The Federal Reserve held the line on Tuesday–leaving the Fed Funds Rate at 2.00% for the third straight meeting. The decision, however, was anything but cut-and-dry.

Earlier in the week, the Personal Consumption Expenditure data indicated that inflation climbed 0.8% overall in June, which is the highest inflation jump in 27 years. In addition, the report indicated that inflation now sits at 2.3%–above the Fed's desired range of 1-2%.

Although the Fed ultimately left interest rates unchanged, inflation obviously remains a concern and the recent rise may lead to an interest rate hike by the Fed in the near future.

What Does This Mean to You?
Many experts believe the housing market is nearing the bottom and may even be set to bounce back up. For now, home prices remain low, personal incomes are high, and interest rates are still very attractive.

If you've been weighing your options and waiting to see how things shake out, this is the ideal time to act–especially when you consider the new Housing and Economic Recovery Act benefits for home buyers:

Tax credits. First-time home buyers who purchase their primary residence between April 9, 2008 and July 1, 2009 are eligible for up to $7,500 in tax credit, as long as they haven't owned a home in the last three years. The credit is actually a generous interest-free loan, so we'll have to talk about some income parameters and payback terms. But if you're a new home buyer – or know someone who is renting or in the market to buy – this is a huge benefit that we should discuss.

Lower rates for larger loans. In the past, mortgages of $417,000 or more have been considered "jumbo" loans that were more expensive to finance. Thanks to recent provisions, however, those jumbo loans were able to qualify for better financing rates in some parts of the country. Although those provisions were set to expire, they are being extended–with a minor change to the maximum amount eligible. This is great news that may save you a ton of cash, so call me to find out how this impacts our area, and if it could help you.

Down Payment Assistance...going, going, not gone yet. Another provision of the legislation eliminates some down payment assistance programs later this year...but they are still available right now, and depending on your circumstances, we may be able to take advantage of them to double your benefit as a home buyer.

Bottom line...now may be the ideal time to put together a purchase strategy based on your unique situation.

Help save Down Payment assistance click on the link and voice your opinion.

Several news items this week could determine whether Bonds and home loan rates continue to make any improving progress. And the main event will be the Fed's Rate Decision and Policy Statement, due for release on Tuesday afternoon at 2:15pm ET, following their regularly-scheduled meeting. While it is widely believed that the Fed will keep the Fed Funds Rate at 2%, there is speculation that the Fed will hike rates later this year to help fight inflation. A hike in the Fed Funds Rate could actually be good news for Bonds and home loan rates, as it should serve to fight inflation, so I will be reading the statement closely for any hints in direction it may give us.

And with good timing for the Fed's discussions, their favorite gauge of inflation will be released on Monday, via the Core PCE (Personal Consumption Expenditure) Report. Core PCE essentially measures price changes in goods and services targeted toward and consumed by individuals, and the Fed does watch this report closely as a key measure of inflation. Last month's PCE showed a core reading of 2.1%, which is just a whisker higher than the range the Fed likes to see - so this month's data will definitely be under scrutiny.

Remember when Bond prices move higher, home loan rates move lower...and vice versa. And since inflation is the arch enemy of Bonds, it will be important to see what the week's news says about inflation. A jump higher in the Core PCE or a Fed Policy Statement that doesn't contain a strong stance against inflation could prevent Bonds and home loan rates from making further improvements.