Do I qualify for the new First-Time Homebuyer Tax Credit?
What is the Housing Rescue Bill just passed into law?

With the Congress recently passing the new Housing Relief Act of 2008 I have been asked many questions by both home buyers and homeowners as to how this effects them. 

These are the most frequenty asked questions:

1. How do I qualify for the first time buyer credit?
2. How can the Housing Rescue bill help me?

I have read and re-read the bill and this is my brief summary of it.

The "let's get this economy moving and help prevent many more foreclosures" stimulus act - or as titled  "The Housing and Economy Recovery Act" kicks off on October 1, 2008 and is designed to:

1. help troubled homeowners avoid foreclosure, and
2. help the economy to generate home buyer demand through a $7500 tax credit

1. Help troubled homeowners avoid foreclosure
If you feel you are in need of some rescuing from your current mortgage payment, you may be in luck with some help from our federal government.

• If you live in your home, can prove you cannot afford to continue paying your existing loan, and are paying at least 31% of your gross monthly income on mortgage debt, you are eligible for help; assuming your mortgage was issued between January 2005 and June 2007

• If your current lender chooses to participate, the program requires your lender to write down the value of your loan to 90% of your home's current (appraised) value. Assuming your lender agrees to write down the value of your loan, a new FHA lender buys the old loan and takes over the reworked mortgage.

• All new loans will be underwritten by FHA on a case-by-case basis. This means you will be required to obtain a new appraisal on your property and will have to provide verification of your income by providing income statements, bank account information, job histories, and credit scores. Sorry ... no stated income loans available this time.

• The purpose of obtaining a new Fixed-Rate FHA loan through the program is to reduce the amount of your mortgage payment and/or save you from those rising ARM rates so that you can afford to stay in your home and therefore avoid foreclosure.
• So, what's the catch?
  • You will have to pay FHA a 1.5% insurance premium AND agree to share any profits with FHA from future home appreciation.  You will be required to pay a 3% "exit fee" of the mortgage principal to FHA when you resell or refinance. Additionally, you will have to agree to pay FHA 100% of any profits you realize if you sell or refinance within a year; 90% after two years, and so on. For example, if you sell within a year with an original loan principal of $175,000 and a sales price of $225,000, you will owe FHA $50,000, minus costs, upon sale.

• Is it worth it?
  • This is a personal question you have to ask yourself. What is it worth to save you from foreclosure?

2. Help the economy to generate home buyer demand through a $7500 tax credit
If you are a "first-time homebuyer" and have been ‘waiting' to buy, wait no longer. Take advantage of an interest-free loan from our government! Do you qualify?

• You must be a "First-Time Homebuyer" .... Now, "first time" homebuyer to the government means something different than what "first time" means to you and me. You are a First Timer according to Uncle Sam if you have not purchased or owned a home in the past three years.
• As a "first-timer" you can receive up to a $7500 tax credit by purchasing a home between April 2008 and June 2009.
• What is a tax-credit?
  • This is called a ‘credit' but it isn't really. You will have to pay the amount back over 15 years. In other words, the tax credit is more of an ‘interest-FREE' loan. If you take the $7500 tax credit, your income tax bill will increase by $500 a year for 15 years.
• So, what's the catch?
  • If you sell the house before the 15 years of paying back the ‘loan' you will have to pay the remaining balance after you sell.

For more detailed explanations of the new bill, visit the following links:

National Association of Realtors® Summary of Key Provisions - the Housing Stimulus Bill (realtor.org)

How Housing Rescue Bill Can Help You (cnnmoney.com)