Economic Stimulus Act Signed Into Law - What does it mean for homebuyers?

By
Real Estate Mortgage Broker with Province Mortgage Associates - NMLS #2861

As I write this, the president is poised to sign the American Recovery and Reinvestment Act of 2009, better known as the $787 billion Economic Stimulus Plan. There has been much speculation about what this plan might do for housing, real estate, homebuyers, and mortgages, ranging from 2.99% to 4.5% mortgage rates, $15,000 tax credits, and more, but when the dust settles and the plan is signed into law, the final effect will be quite different. 

The most important thing the finaliztion of this plan will accomplish is it will end that speculation. Over the past few weeks, I have spoken with dozens of homebuyers, realtors, financial planners, and fellow mortgage advisors about the economic situation and the stimulus ideas, and the overwhelming consensus was this: "I'm not doing anything until I see what comes out of the package."

This is exactly why finaliztion of the package is important: not because the package might contain some magic bullet that will stop foreclosures, recapitalize banks and restore Amercans' faith in the financial system; rather because finalizing it puts an end to further guesswork regarding its contents.

So what does the package contain for the average homebuyer?

$8000.

Section 1006 (page 54 of the conference report) describes changes to Section 36 of the Internal Revenue Code modifying the previous homebuyer credit that had been enacted in October of 2008.  Specifically, the following important changes have been made:

  • Credit has been increased: the original credit was limited to $7500 or 10% of the home's purchase price; this has been upped to $8000 or 10%. 
  • Credit no longer requires repayment: a significant criticism of the original 2008 credit was its repayment requirement, as those taking the credit would be required to repay it over 15 years. That has been addressed in the new law so that repayment is now required only if the home is sold within the first 3 years. 
  • Credit is now allowable for buyers using "revenue bond" funded mortgages: many state and local entities offer first-time homebuyer mortgage programs that sometimes offer terms more favorable than government or conventional mortgages. Previously those buyers had been prohibited from accepting the credit, however they may now claim it.
  • Time to purchase extended: the original credit was due to expire June 30th; the revision extends that to November 30th

Meanwhile, many components follow the original wording instituted last fall, specifically:

  • Credit is refundable: this means that a homebuyer who would otherwise owe no tax may still claim this credit and receive it as part of a tax refund
  • Credit is for first-time homebuyers only: sorry, move-up buyers, but you won't receive this credit; do expect many more first-time homebuyers to be looking at your house, which should help you sell more quickly, if you're priced correctly
  • Credit is income-limited: the legistlature didn't see fit to modify the terms of this program to allow all homebuyers to benefit, only those who haven't owned in the past 3 years

Finally, certain components are still somewhat unclear:

  • Credit may be retroactively claimed: the prior credit offered the option to claim as if the purchase took place 12/31/2008 even if it closed in the early parts of 2009. The final bill's language appears to replace this paragraph (page 122, Stat 2981, section 36 subsection g) with something unrelated, which may mean buyers will need to wait until 2010 to claim the credit. UPDATE - As of 12 March, I have received confirmation that this credit may be claimed as if the home purchase took place in 2008, allowing buyers to get quicker access to the credit.

Overall, this program does a lot to change current programs by making them significantly more attractive to homebuyers. The removal of repayment requirement makes the credit much more attractive than the previous offer that had been made. The other changes are more semantic than meaningful, but the most significant thing accomplished by enactment of the bill is this:

Clarity

At least now, we can stop guessing, and start working towards improving the housing market. 

 

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, Inc, and has worked in the mortgage industry for over 9 years.  A 2005 MBA graduate of Clark University, Dan also serves as an Adjunct Professor of Finance for the University of New Haven and Roger Williams University.

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Re-Bloggged 6 times:

Re-Blogged By Re-Blogged At
  1. Donald Bradbury 02/18/2009 08:13 PM
  2. Brad Koenig 02/18/2009 08:27 PM
  3. Sharon Sapp 02/18/2009 08:32 PM
  4. Mike Hughes 02/18/2009 08:46 PM
  5. Max Gieck 02/19/2009 08:57 AM
  6. SHELLEY QUEEN 02/19/2009 04:28 PM
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Ambassador
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Anna Banana Kruchten
Phoenix Real Estate Agent, CRB, CRS 602-380-4886
Phoenix Property Shoppe

Dan......we're not so sure about is the $8000 refund. We're working on tracking that down today.  I don't want to put that out there until I know for sure that is the case.  If it is...that is a heck of a selling point for our first time buyers here in Phoenix, of which we have a bunch of them due to the foreclosure deals.

Anna Banana Phoenix Arizona  www.annabananarealty.com

February 20, 2009 11:36 AM
Rainmaker
904,292
Bill Gassett
Metrowest Massachusetts Real Estate
RE/MAX Executive Realty

Nice explanation of what has happened with the new legislation. This should help with the market at some point down the road.

February 20, 2009 10:27 PM
Rainmaker
247,831
Chuck Willman
Realtor - Arizona - 480.292.0600
Gentry Realty

I'm wondering how this will all work once we have the final details... I'm already feeling some of the buzz from the plan... I'd love to fast forward to the point where we see the results.

February 21, 2009 08:06 PM
Rainmaker
308,767
Anja Kerstens
GRI, CDPE, CHS, ASP, Selling Silicon Valley Real Estate
Summit Realty Group

Thanks for the information.  I was out on a buying trip (for myself) in a different part of the state and the buyer agent told me that we would qualify for this credit.  Well, good thing I knew about the first-time-homebuyer requirement.  She apologized and explained that "her headcold influenced her thinking" and that I was probably right.  I was happy to read this blog.

February 23, 2009 10:33 PM
Rainer
74,713
Dan Hartman
Province Mortgage Associates - NMLS #2861

Matt - thanks for your feedback on this. I think it could be useful for FHA buyers using gifts from family or friends for downpayment, so long as they are aware of it.

Lisa - again, I think this could be useful for buyers using a gift. There has been improvement lately in the savings rate - 5% of personal income in the US was saved in January, which is a big step.

Dee Dee - from reading through the law, it appeared that the $8000 credit only covers purchases from 1/1/09 to 11/30/09. Those taking the $7500 credit will still have to pay it back.

Terry, Buyers 1st - that's a huge part of our job as real estate and mortgage professionals - spreading the word.

Marika - there is separate talk of programs to encourage lenders to help their existing clients. Those struggling with their current mortgage should look into refinancing, and, if unable, talk to their current lender.

Tamara- thanks for your feedback!

Anna, Matt - the tax credit is something that all buyers will be able to claim, even if the owe $0 tax, from my reading of the bill. A first time homebuyer who had a $0 tax bill after withholdings would still get $8000 back from how I've read this, but check with your tax professional to be sure.

Ken - I'm not familiar with mortgage availability in the Florida market, but I would think that FHA programs would be helpful with the problems you described, and FHA is available with as little as 3.5% down.

Bill, Chuck, Anja - thanks very much for your feedback!

Thanks again, everyone. If you have more questions on this, please leave a comment or email me.

Dan

March 02, 2009 12:19 PM
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Dan Hartman's Blog about mortgages, real estate, and the economy in New England, and the United States, especially Rhode Island Rates, Connecticut Mortgages, Massachusetts Rate Locks, and New Hampshire Home Sales. Let Dan leverage his MBA in Finance and experience as a college professor for you! Locations of visitors to this page Site Meter