Here is some information about the Housing and Recovery Act of 2008 and what it means for you! There is a very nice summary of the bill located at the National Association of Realtors website here and some FHA FAQ's can be answered by clicking here. John L. Scott also summarized it here.
Housing and Economic Recovery
Act of 2008
The passage of the Housing and Economic Recovery Act of 2008 is an enormous step forward for homeownership that not only benefits hundreds of thousands of current and potential homebuyers.
What does the legislation mean for you?
Key Points of the Housing Bill:
First – time home buyer tax credit
Higher permanent loan limits
Foreclosure relief
Refinancing assistance
Lines of credit to Fannie Mae and Freddie Mac
Additional deduction for property taxes
First – Time Home Buyer Tax Credit
Buyers who are purchasing for the first time or who haven’t owned property in the last three years would qualify for a tax credit equal to 10% of their home purchase price, up to $7,500.
Purchase must be made between April 9, 2008 and July 1, 2009
Home must be primary residence
Can not have owned a home in the last 3 years
Credit phases out if buyer’s income exceeds $75,000 for an individual or $150,000 for a couple filing jointly
This is a tax credit and not a tax deduction
Credit must be paid back over 15 years in equal installments
Effects of First – Time Home Buyer Tax Credit
The 1975 Housing Act created a 5% tax credit (up to $2,000) for first-time buyers. 535,000 people took advantage of the tax credit to become new homeowners.
In 2008, there is a good selection of homes in the more affordable price ranges, but there is not an overabundance. Homes in the more affordable price ranges will only go up over this next ten-year housing cycle.
The ripple effect of increased sales in the more affordable markets will eventually cause a chain reaction of sales up the price points, helping stabilize the entire housing economy.
Higher Permanent Loan Limits
FHA, Fannie Mae and Freddie Mac loan limits will be permanently increased to 115% of median price, up to $625,000!!!
FHA base limit (floor) is increased to $271,050
Fannie Mae and Freddie Mac base limit remains at $417,000
Loan limits will depend on median price in the MSA (metropolitan statistical are,) up to a maximum of $625,000.
Higher loan limits mean more buyers qualify for affordable financing, especially those seeking to purchase homes in the higher price ranges.
Foreclosure Relief
Will provide assistance to more than 400,000 homeowners who are in danger of foreclosing.
Homeowners must live in homes that were financed between January 2005 and June 2007.
They must be spending at least 31% of gross income on mortgage payments
Home will need to be reappraised to determine current value
Lenders will write down value of loan to 90% of home’s current value
FHA will back each loan
Refinancing Assistance
The government will insure up to $300 billion in refinanced mortgages.
Decreasing the number of foreclosures will help curtail their negative effect on home prices.
Lines of Credit to Fannie Mae and Freddie Mac
The treasury Department will have the power to extend unlimited credit to Fannie and Freddie.
Will create a new regulator to oversee these GSEs (government sponsored enterprises)
Government support of Fannie and Freddie will boost consumer and investor confidence in home lending.
Additional Deduction for Property Taxes
Homeowners can deduct up to $500 (or $1,000 for joint filers) for state and local property taxes.
Applies only to homeowners who claim the standard deduction, not those who itemize
Applies only to 2008 tax returns
Among homeowners nationwide. Currently only one half itemize. So 50% of all homeowners can take advantage of this tax deduction.
Additional Notes
The act will eliminate seller funded down payment assistance programs including Ameridream, Genesis, and Nehemiah effective October 1, 2008. The borrower must be under contract, underwritten and approved by September 30, 2008.
Effects of Housing Tax Credit
The last time the government passed a tax credit for home buyers, 535,000 people took advantage of it, sales of homes increased 10%, and inventory of new homes on the market was cut from over 10 months to fewer than 6. The 2008 legislation could boost the number of homes sold to 700,000 or 10%.
This is the beginning of the next real estate cycle!
If you have been waiting for the ringing bell to alert you to the right time to buy or sell, this legislation could be it - don’t miss this opportunity!