Legislation was signed over the weekend to extend the closing deadline for the First-Time Homebuyer Credit. The extension moves the closing date requirement from June 30th, 2010 to September 30th, 2010. Please note that this does not open up the tax credit to those that do not already have an executed purchase agreement…it just allows those who had a purchase agreement in place by April 30th, 2010 to be able to close at a later date and still receive the tax credit.

Many soon to be homeowners were running into issues with short sales taking longer than expected to get approved or were having issues getting financing in time for the previous closing deadline.

To help shore up their reserves, FHA is increasing its upfront insurance premium fee to 2.25% (up from 1.75%).  It has also asked congress to increase the annual insurance fee it receives from borrowers.  These changes will take effect this spring.

To guard against defaults, the FHA will be raising the minimum down payment on borrowers with credit scores less than 580 to 10% of the purchase price (currently 3.5%).  This won’t effect the majority of FHA borrowers as fewer than 1% of those borrowers last year had a credit score under 580 (according to LPS Applied Analytics).

Also, the amount of seller paid closing costs will be reduced from 6% to 3% of the purchase price.

Both the 10% down payment and the seller paid closing cost cap will go into effect this summer.

While all of these new provisions will make it a tad more difficult for lenders to push some new borrowers through underwriting, the majority of buyers will be unaffected by everything except for the higher insurance premium.

As always, leave any questions or observations in the comments below.

UPDATE (2/24/09): Revisions have been made to this bill with the American Recovery and Reinvestment Act of 2009.  After reading about this bill, read about the changes made here.

In this second post of our H.R. 3221, the “Housing and Economic Recovery Act of 2008″ Series, we talk about a provision included that allows most first time home-buyers to receive at $7500.00 tax rebate.  Make sure you read all the way through as there are some caveats and a TWIST.  Here are the details you need to know:

• The $7500 Tax Credit is available to firs-time home buyers that purchase a principal residence sometime after April 9th of 2008 and sometime before July 1st of 2009.
• The Credit is a “refundable” credit.  So, if you have a tax liability of $2000 next year and qualify for the full $7500 credit, you would be hypothetically entitled to a $5500 refund!
• A first-time home buyer is classified as someone who has not had an ownership interest in a property within the past 3 years.
• There are income restrictions on the tax credit, so if you make more than $75,000 filing single or$150,000 filing jointly, you may not be eligable for the tax credit (I haven’t found a good description of the calculations used to phase-out the credit…let me know if anyone knows them and I’ll post it here).

• The tax credit is tied to the price of the home you purchase.  It will be 10% of the purchase price of the home with a maximum of $7500.  For example, if you purchase a home for only $50,000,then the credit you could receive would be $5000…but a purchase price of $160,000 would max out at $7500.

BUT WAIT….THERE’S A CATCH!

Unlike most other tax credits, this tax incentive must be paid back.  All eligible purchasers who claim the
credit will be required to repay it over 15 years.  The statute specifies that the repayment amount will
be 6.67% of the credit amount each year.  Thus, a buyer who qualifies for the full $7500 credit will repay
$502.50 each year.  There will be no interest charge on outstanding balances.

When the person who used the credit sells the home, any amount of tax credit that has not been repaid
will be due in the year of sale.  For example, if an individual still “owed” $4000 in repayments and
realized $25,000 of proceeds from the sale, the $25,000 of seller proceeds would be reduced to $21,000
and $4000 will be remitted to the IRS.

If the gain on the sale is less than the amount that must be repaid, part of the liability is forgiven.  For
example, if the individual still “owed” $4000 but the gain on the sale was only $3500, then the seller
would not be required to repay the IRS the $500 shortfall.  If there was no gain or even a loss, then the
remaining $4000 would not be repaid.

All in all, I’m in favor of this provision in the bill.  It gives first-time home buyers a great incentive to purchase a home over the next year, and allows them to basically “borrow” up to $7500 from the government and pay it back with the equity they gain in their home…with no repercussions if they gain no equity by the time they sell.  I’m sure there are a bunch of questions, so feel free to fill up the comments section or shoot us over an email.

Tomorrow we’ll be talking about some of the changes to the FHA program the bill brought about.

Your $8000 Tax Credit | What Home Buyers Need to know about the American Recovery and Reinvestment Act of 2009

H.R. 3221, the “Housing and Economic Recovery Act of 2008″ Why You Should Care Series – Post 1

First-Time Home Buying in 2008: 5 Reasons Why Now is a Good Time To Buy

Search the MLS for your first home here!

With the constant barrage of negative media surrounding real estate these days, it’s no wonder that newlyweds and other first-time home buyers are putting their dreams of buying their first home on hold. But 2008 promises to be as good a time as any to buy your first home and here’s why:

It’s a buyer’s market

With foreclosures adding houses to a market already hungry for buyers and economists predicting that residential housing sales and prices will not pick up until 2009, sellers who need to sell are lowering prices and often throwing in additional incentives.

Perfect timing is rarely achieved

Although you should educate yourself and use caution when buying into a declining market, a buyer waiting for prices to hit absolute bottom, usually waits too long and then pays the cost of buying into a rising market with increased home prices. If you’re planning on staying put for a while, now is a great time to buy your first home because the market will eventually balance itself and turn once again to a seller’s market and when it does, your home’s value will increase too.

Interest rates are low

Recent Federal Reserve decisions have lowered interest rates yet again making the Federal funds rate drop to 2.25% (down from 5.25% a year ago) and the prime rate drop to 5.25%. And today a Bankrate.com index showed that the national overnight average for a 30-year, fixed-rate mortgage is being offered at 5.74% and a 15-year fixed at 5.09%, both of which are buyer-friendly rates.

Labor and materials are readily available

Even if you don’t qualify for enough financing to buy the home of your dreams due to tightening lending practices, it’s easier than ever to fix-up and maintain properties with the number of home improvement stores, tips, do it yourself classes and handymen readily available. And because new construction has slowed down in most markets and all trades that depend on it are eager for employment, buyers are likely to get better work, done faster and maybe a little cheaper in 2008 than at anytime in the future.

A need to sell makes sellers flexible

Remember, sellers who don’t need to sell right now generally don’t have their properties for sale. And those who do need to sell tend to be more flexible in negotiations, so buyers should consider proposing terms that ask sellers to help make the deal work beyond just lowering their price. Sellers may have the ability to finance part of the purchase price to make it easier on the buyer, they may be able to fix or replace something that needs updating, and they can always pay more than the customary share of closing costs and taxes.

Happy House Hunting!!