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Federal Tax Credit Extended

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Mortgage and Lending with Total Mortgage Services

Federal Tax Credit Extended

As a part of the Obama administration's economic stimulus package, first-time homebuyers have been taking advantage of tax credits up to $8,000 since January. With the expiration of the initial tax credit looming on November 30, Congress just enhanced the tax incentive for a new group of homebuyers.

The Senate voted unanimously (98-0) yesterday to expand the tax credit to $6,500 to include homebuyers who have owned their current homes for at least five years. For first-time homebuyers - or previous homeowners who have not owned a home in the past three years - the tax credit will remain at $8,000. In either case, homebuyers must sign a purchase agreement no later than April 30, 2010 and close by June 30, 2010. The House of Representatives also passed the bill today, and it is headed to the White House for President Obama's signature.

According to Senator Johnny Isakson (R-GA), a former real estate executive who is a staunch proponent of the credits, "This is probably the last extension." Senator Max Baucus (D-MT), chairman of the Senate Finance Committee, added, "We are still in a world of economic hurt, and Congress must continue to act boldly and creatively. ... With the right mix of tax breaks and investments, we will get through this recession and get folks working again."

The National Association of Realtors indicated that of the 1.4 million first-time homebuyers that have qualified for the tax credit through August, an estimated 350,000 made their purchase based on the tax credit, and would not have purchased a home otherwise. The updated tax credit is limited to the purchase of primary residences, and in order to qualify, borrowers must have an annual income of no more than $125,000 (filing individually) or $225,000 (filing jointly). For members of the military serving outside of the United States for at least 90 days, the tax credit will likely be extended to June 30, 2011.

As a 26-year member and current chairman of the Senate Committee on Banking, Housing and Urban Affairs, Senator Chris Dodd (D-CT) said in reference to the impending tax credit expiration: "The work of stabilizing the housing market won't be done ... We still need to use every tool at our disposal to fix this problem." With the purchase of mortgage-backed securities expected through the first quarter of 2010, current mortgage rates are expected to remain relatively low. With the news of the extension and modification of the federal tax credit, it appears the housing market will continue to strengthen, resulting in a stronger economy as a whole.

-Robert Hyder

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