Mortgage News
On July 31, the President signed into law H.R. 3221, the Housing and Economic Recovery Act of 2008, a sweeping, nearly 800-page housing law, unlike anything we’ve seen in a generation. Shrouded in controversy, the bill has a number of provisions which have been exhaustively debated and politicized in the media ever since.
But don’t worry, we’re not going to put you through that in this article.
Instead, we’ll put all politics aside and share with you two extremely important provisions of this landmark legislation that everyone looking to buy or sell a home in the next year needs to know about: 1) the elimination of seller-funded down payment assistance programs, and 2) the new $7,500 tax credit for first-time home buyers. Unlike the other measures of the bill, these two provisions actually create some great opportunities for informed home buyers and sellers who act now.
First, let’s discuss the bill’s provision to ban seller-funded down payment assistance programs or DPAs beginning in October. Why does it matter? And why should you care?
The Elimination of DPAs
For most home buyers today, especially first-time buyers, saving up enough money for a down payment can be challenging to say the least. DPAs solve this problem by allowing a seller to contribute money to a down payment assistance company, a third party which then provides a legal grant to the home buyer. For FHA mortgages, which required as little as 3% down, this program has been very popular in the past – an estimated two-thirds of all FHA loans utilized these programs. Since 2000, that’s nearly 900,000 families! Without this program, many buyers qualified to buy a home today will not be able to qualify without the required down payment for FHA loans (which is increasing to 3.5% under the new law.)
This is not just bad news for buyers. Sellers also benefit from DPAs. Not only do DPAs create a larger pool of potential qualified home buyers, they also create attractive financing options for the seller that do not require lowering the price of the home again, which is extremely valuable in today’s real estate market.
With this in mind, if you or anyone you know is looking to utilize down payment assistance as a tool to buy or sell a home, now is the time to act. Even though the elimination of DPAs doesn’t go into effect until October 1st, many lenders have already stopped or will no longer offer these programs prior to the October deadline, so don’t wait. You may have heard that a new bill was already introduced in the House to overturn this provision, but don’t count on that happening. With today’s combination of low prices and low interest rates, now is the time to take advantage of this program before it goes away for good.
New Tax Credit for First-Time Buyers
The second important provision of the new housing bill we’ll discuss in this article is the new $7,500 tax credit for first-time home buyers. And while this is one of the most talked about measures in the new bill, it is also the most misunderstood.
Basically, the government has created a monetary incentive, a tax credit for first-time home buyers, as a tool to stimulate the housing market. The tax credit will be 10% of the purchase price of a home, up to a maximum of $7,500. That means if the home costs more than $75,000, first-time home buyers (anyone who hasn’t owned a home in the last three years) will receive the full $7,500 tax credit.
This is not a new idea. The government offered a similar program in the 1970s, but with one major difference: the new tax credit will have to be paid back over a period of 15 years, beginning two years after the credit is taken. In essence, the government is providing first time home buyers an interest-free loan to help them buy a home! If the home owner happens to sell the home before the 15 years is up, the remaining credit is due upon sale from the profit of the home sale. However, and here’s the best part, if there is insufficient profit, after the sale of the home, then the remaining credit due is forgiven. You really have nothing to lose.
There are, of course, income limits to qualify for this incentive, but give us call and we’ll see if you can take advantage. With this new tax credit and down payment assistance, you are finally in the driver’s seat in a buyer’s market with some of the best interest rates we’ve seen in years.
If you know anyone who is looking to buy, sell or refinance a home, please forward their name and telephone number to us. We will happily provide the same high level of service that we have provided to you. The greatest compliment you could possibly give us is the referral of your friends and family.
Allen Robinson – CMPS,CMA,TEAM,CLA
Certified Mortgage Planning Specialist
South Florida Mortgage Planner
First Trust Mortgage
2933 W Cypress Creek Rd, #201
Ft Lauderdale, FL 33309
954-771-1828 ext 229
