Posts Tagged ‘tax credit’

Today Hud released rules allowing first-time homebuyers (FTHB) to use the $8000 federal tax credit as part of the down payment on their purchase of a home.  That’s good news, right?  Well, except for this part:

Accordingly, the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs. [emphasis mine]

In other words, this program is not going to replace the Nehemiah or Neighborhood Gold programs that allowed homebuyers to get into properties with nothing down.  Yes, you can use the credit to cover closing costs, but those costs were in most cases already being covered by the sellers.  Yes, you can use the credit to increase your downpayment (as long as you’re getting an FHA loan), but because it’s an FHA loan, that won’t improve your interest rate.  It will reduce the monthly payment by a few dollars ($400 a year, about), because the initial balance will be lower, but that’s about it.

So, what do we give this?  One cheer?  A cheer and a half?  Maybe, but not three cheers.  Not for this.

1. $8000 tax credit – this is a federal government program for first-time homebuyers.  There are certain income restrictions, and it is only for owner-occupied properties.  Claimed on your taxes, either this year or next.  Must be for properties purchased after January 1 and before December 1 of 2009.  Credit does not have to be paid back, as long as you are in the property for 3 years from the date of purchase.  Credit paid to you even if you owe no tax.

2. $6000 Home Run Grant – this is a State of Utah program only for properties that have not been lived in.  Cash is wired directly to the title company and can be used at the close for any purpose. There are limited income restrictions, and again, only for owner-occupied properties.  Only 1600 of these were authorized; as of this morning, there were 1340 of them left.  We’ve done these and know the drill.

3. Home Affordable Refinance – this is a lender-driven refinance program that can take your loan up to 105% of the value of your house.  WE CAN DO THESE. However, the rules and underwriting guidelines have not yet been introduced by FNMA/FHLMC, so no matter what you are told, these are not on the street yet.  Probably the end of the month.

4. Home Affordable Modification – this is a US Treasury-driven program through servicing lenders, in which they modify the terms of the loan they hold.  You do this one yourself, or with a modification company (check them out carefully, but they can be VERY helpful) by calling the lender directly.  Qualifiers are determined by the servicing lender, but you have to be “in imminent default”, which most lenders are interpreting as having missed payments, lost your job, or something like that. Substantial modifications are possible, including interest-rate reductions, term extensions, principal forgiveness, all sorts of things.

Most of you know there has been, for about 9 months, a $7500 tax credit for first-time homebuyers for anyone that buys a house from April 2008 to July 2009.  The new “stimulus” package currently wending its way through Congress contains a modification of that credit.

The Senate version of the bill had an increase in the credit to $15,000, made it for ALL homebuyers, and removed the payback provision of the original.  The conference committtee, however, has downsized that credit to $8000, rolled it back to just first-time homebuyers, and protected only the 2009 January to August purchasers from repaying.  If you bought last year, in other words, you get another $500 but you still have to pay the credit back over 15 years.

Personally, I hate it when Congress does most anything, but this back-and-forth, you get the credit but you don’t silliness is not going to help the markets at all.

The credit is targeted at the wrong people, timed incorrectly, is a tax-accounting nightmare and overall one of the stupidest non-ideas I can remember.  And I like tax credits.

More here.