The new credit program would dangle tax savings in front of almost anyone considering buying a first house, or buying a house after not owning one for at least three years. Tax credits are more valuable than deductions because they are dollar-for-dollar reductions off whatever you'd otherwise owe on your federal taxes.
"This should be a very potent stimulus," said Howard Glaser, president of Glaser Group, a Washington legislative consulting firm representing mortgage lenders. "Unlike the earlier [economic] stimulus package" - the one that has been pumping out tax rebate checks to consumers - "this one is directly targeted at selling houses" at a time when unsold inventories are glutting local markets.
The credit's expansive definition of who qualifies as a first-time buyer is a plus in economically hard-hit areas of the country where many former owners have become renters in the past several years.
But the credit comes with some noteworthy limitations. No. 1: You have to pay the credit back to the IRS over an extended period - up to 15 years after the tax year of the home purchase. And if you sell the house or convert it to another use other than principal residence, such as a second home or investment property, you have to repay the credit.
There's also an income restriction of $75,000 for singles, $150,000 for married joint filers. Beyond those limits, the maximum allowable credit would phase down in increments. The credit program covers qualifying home purchases between last April 9 and April 1, 2009.
The portion of the legislation that deals with financially distressed homeowners would help an estimated 400,000 borrowers. It is restricted, however, to owners who cannot afford their current loans and have a mortgage debt-to-income ratio above 31 percent. The owner of the mortgage - either a lender or bond investor - must agree to reduce the balance of the principal amount to 85 percent of the current market value - i.e., to write off a significant chunk of what's owed.
If these and other conditions are met - including borrowers agreeing to split any future appreciation with the government - they may qualify for a new fixed-rate 30-year FHA loan that they can more easily afford.
kenharney@earthlink.net.
