My Mind on Mortgages

If you haven’t heard, the United States Congress and President Obama have passed legislation that expands the first-time homebuyer tax credit and extends it into the first half of 2010. Before we go any further, we want to make it clear that we are not tax professionals and recommend that you contact a tax professional to see how this law may apply to you.

Initially, the first-time homebuyer tax credit came into law as a part of President Bush’s Housing and Economic Recovery Act of 2008. In the original form, first-time homebuyers were eligible to receive up to $7,500 in the form of a tax “credit” but were required to pay back the credit over a 15-year period.

Earlier this year President Obama signed into law the American Recovery and Reinvestment Act of 2009, which increased the maximum amount of the tax credit to $8,000 and eliminated the payback provision. To be eligible for the credit, homebuyers must have not owned a home in the previous three years, must close on their purchase no later than November 30, 2009, and must make less than $75,000 for individuals and $150,000 for households.

Under the new law, the first-time homebuyer tax credit has been extended, and a $6,500 tax credit for existing homeowners has been added. Here are the details:

· Eligibility criteria for the first-time homebuyer tax credit have not changed: a homebuyer must have not owned a home in the past three years.

· To be eligible for the $6,500 homebuyer credit, homebuyers must be buying their primary residence and have lived in their existing home for at least five of the previous eight years. (The credit is not available for vacation or investment property purchases.) Homebuyers do not have to sell their existing home to be eligible for the credit.

· The credit is available to homebuyers who qualify, as long as they enter into a sales contract no later than April 30, 2010 and close no later than June 30, 2010. The $6,500 existing homeowner tax credit becomes effective December 1, 2009.

· In addition to expanding the tax credit to existing homebuyers, the new law raises the income qualification thresholds to $150,000 for individuals and $225,000 for households.

Although many critics have pointed out that the extension and expansion of the home-buying tax credit is poor public policy, there is no question that it offers a unique opportunity for existing homeowners to purchase a new home with a generous government subsidy.

Mortgage rates remain near historic lows and, according to the Case-Shiller Home Price Index, real estate prices in the Portland-Metro area remain 20% off their July 2007 highs. If you’ve been considering a move, this may be your once–in-a-lifetime opportunity. Please contact us if you’d like to review your loan options and obtain pre-approval.

Here is a link to the section of the IRS website which summarizes the new law.