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

By
Mortgage and Lending 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:

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  2. Brad Koenig 02/18/2009 08:27 PM
  3. Sharon Sapp 02/18/2009 08:32 PM
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Rainmaker
51,421
Greg Saunders
RE/MAX Around Atlanta

Dan:

Great info.  I feel that a real stimulus would have been to offer the credit to all home buyers.  All you have to do is look at our market to see that prices on housing and the current interest rates are a pretty big incentive for all first buyers.  Now that would be change we could all benefit from.....

February 19, 2009 07:02 AM
Rainer
21,972
Matt Thomas
Atlas Real Estate Advisors

The $7500 credit did nothing for my business ... most buyer didn't understand it and would only take advantage if advised by an accountant, etc.  Unfortunately, in the initial feedback I'm receiving, this one won't be much different.  They know there's a "credit" out there, but the general public doesn't understand it enough to really spur activity.

February 19, 2009 07:31 AM
Anonymous #14
Anonymous
Lisa Ackerson

I'm finding all of this very frustrating.  Yes, the credit for first-time buyers is great.  However my experience has shown that many of the first-time buyers out there haven't saved for a downpayment and they haven't kept their credit scores high enough to qualify.  They didn't know they had to since loans were so easy to get in the past.  So, first they have to get themselves into good enough shape to be able to purchase in order to even get an opportunity to use this credit. 

If this credit had been extended to all buyers (even if it had to be repayed), we'd have a better chance of stimulating the market.

February 19, 2009 08:13 AM
Anonymous #15
Anonymous
Not for all buyers

I was very disappointed to see that they did not offer a tax credit or any other incentive for the "move up buyer" or potential new buyers other than the first time homebuyer.   If they were going ot make changes, I believe there could have been more funds appropriated for stimulation of the housing market.

 

February 19, 2009 08:40 AM
Rainmaker
148,836
DeAndrea "Dee Dee" Jones
The Northern VA Real Estate Lady
Home Buyers Marketing II, Inc.

Anyword anyone on if this will be retroactive to those who purchased in 08 to not have to repay?

February 19, 2009 09:15 AM
Rainer
8,533
The Harris Team Experience & Knowledge
Beyond A Real Estate License
Thompson's Realty

Great post, I think what we have to do as Realtors is get the word out to 1st time homebuyers. Actually there have been alot of folks that have been renting for 2 -2.5 years that decided not to purchase another home after they sold theirs because they saw the market was going down. So I believe there are buyers out there that don't fit the typical 1st time buyer profile that do have down payments and may take advantage of this $8,000 credit.

February 19, 2009 10:36 AM
Rainmaker
104,671
TERRY DRISCOLL
REALTOR - Get the Attention You Deserve!
MAINE HOME REALTY

It is what it is.  We have our work cut out for us - - educate, educate, educate - - but that's what we do!  I think the non-repayment feature is HUGE.  Under the original plan, that $7500 was debt disguised as a tax credit. 

February 19, 2009 10:42 AM
Rainer
7,767
Marika .
Coldwell Banker
Thank you for the good article. How about current homeowner that are hurting with mortgages- do you see any real help coming for them?.
February 19, 2009 10:54 AM
Rainer
7,767
Marika .
Coldwell Banker
Thank you for the good article! Do you see any real help coming for homowners that are hurting with mortgages?
February 19, 2009 10:56 AM
Rainmaker
86,736
Tamara Dorris
Davis & Davis

Hi Dan,

Thanks for clearing this up for me. Financing has never been my strong suit (which is terrible when I've taught real estate financing!), but reading this really helped.

Still a bit unclear on the tax part, but I understand more than I did before reading your post.

 

thanks!

TD

February 19, 2009 02:43 PM
Ambassador
1,406,874
Anna Banana Kruchten
Phoenix Real Estate Agent, CRB, CRS 602-380-4886
Phoenix Property Shoppe

Good article Dan.  I agree with one of the other gals.....is is what is.....so let's quit wanting something different and get out there and sell it the best we can.

Question.  Are there some senarios (that you can think of at this point) that the tax credit won't be so helpful?

Anna Banana www.annabananarealty.com

February 19, 2009 03:55 PM
Rainer
30,303
matt mathews
mathews Realty Group

Another worthless BANDAID!!  The problem is;  The Buyers who are going to get the Credit are first time buyers, usually in the lower income tax bracket. They are also the buyers  who for the most part usually  get a Income tax refund. In order to get the benefit of a Tax Credit you have to file a 1040 showing itemized deductions. Most of these buyers probably file a short form and take the standard deduction.  A Tax Credit is a dollar for dollar reduction against taxes owed.  Unless there is something I'm missing here about this Tax Credit-Usually Tax Credits are reserved for Higher Income Tax Familys in the million dollar net worth category.  I don't know too many of those folks who would be first time Home Buyers do you??? .   

 

Matt Mathews/Buyer Agent/Investment Advisor. CFP-RIA.  

February 19, 2009 04:35 PM
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Anna Banana Kruchten
Phoenix Real Estate Agent, CRB, CRS 602-380-4886
Phoenix Property Shoppe

Matt....this is exactly what I've been tossing around in my office today.  It just isn't making a lot of sense to me as my thinking is the same as yours by experiece.  Somebody please help clear this up!

Are we missing something here?

Anna Banana www.annabananarealty.com Phoenix, Arizona

February 19, 2009 04:51 PM
Anonymous #25
Anonymous
Ken Day

I don't see this helping Florida very much. First time homebuyers are having trouble with down payments and/or bad credit. People already in homes, that are in the process of losing them, would be helped the most if the banks would be sensible about refinancing. Banks want 20% down on a value based on a current appraisal. Property values are down so much that most people wanting to refi have to take thousands of dollars out of their pocket to meet the 20% requirement. There seems to have been a lot of talk over the past several months about the banks and the government implementing programs and helping thousands stay in there home. Every time I see one of these stories I ask myself, "What are they talking about? Where is this happening? I sure don't see it around here." I think this latest bail out bill is of most help to politicians. A way to use a crisis to get large amounts of money to certain favorite political groups.

Ken Day, Port St Lucie, Florida   ken@kennethday.com

 

February 20, 2009 09:26 AM
Rainer
74,713
Dan Hartman
Province Mortgage Associates - NMLS #2861

Thanks all for your feedback and comments! Let me try to answer a few of your questions:

Vickie - The best we can do is to continue to provide our clients with the best service and information we can - let's keep it up!

Barbara - My understanding of the credit is that it is fully refundable - if you owe $8000 in taxes you'd then get $0, if you owe $4000 in taxes, you'd get $4000, and if you owe $0 in taxes, you'd get back $8000. You should check with your tax professional before relying on this, though.

Jacque, Bo, Joan, thanks for your feedback!

Jay - This is the only initiative I saw in the package.

Thom & Ray - I think we could all ask for more, but let's do the best we can with what we have!

I'll respond to more of your comments later; for now I have to run to Connecticut.

Thanks again!
Dan

February 20, 2009 11:21 AM
Ambassador
1,406,874
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
908,516
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
257,139
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
308,992
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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Rainer
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