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$6,500 "Move-Up" Credit Explained by the Senator Who Invented It

By Dave Woodland

Mortgage and Lending with Signet Mortgage

November 05, 2009 09:14 AM

Obama to sign legislation tomorrow - will extend to June 30, 2010 - First Time Home Buyers still $8,000 and Some Existing Home Buyers Qualify for NEW $6,500 “Move-Up” credit ...

November 5, 2009

Congress acted with urgency today to get the Unemployment and Housing Credit bill out before the Unemployment numbers are reported tomorrow. As part of this, the House accepted the Senate amendments to the bill Extending and Expanding the Home Buyer Tax Credit. As reported in the New York Times, minutes ago, the existing credit will both be extended through the first part of 2010 and expanded to higher income buyers. A new $6,500 credit will be there for some long-time existing homeowners, moving to a new home.

Some cheer, others not so. Is this the right thing to do? As real estate professionals we look forward to the increased activity, but what are the unintended consequences of congressional meddling with the market economy (see Clunkers and see Barney Frank demanding expanded qualification guidelines at FNMA.) How will it be paid for? The projection is that this extension will double to $21 billion the cost of the program.

Here are the important points:

$8,000 First Time Home Buyers credit continues

New $6,500 for existing “Move-Up” homebuyers

- Same home for 5 yrs of past 8-yr period

Contracts (EMA) signed by 4/30/10

Closings before 7/1/10

Home purchase price of $800,000 or less

Income limits expanded

- Old: $75,000 single, $150,000 Married

- New: $125,000 single, $225,000 Married

Tax Return filing will require HUD-1 be Attached

If you are a glutton for punishment, here is the text of the legislation.

As we have told you in the past, the true champion of the Housing Credit Extension is Senator Johnny Isakson (R-GA) a Realtor of 33 years. Here is what he had to say to explain the need for this extension AND expansion now:

“In addition to the $8,000 credit extension for first-time home buyers, a move-up buyer tax credit of $6,500. This is the cornerstone of the substitute before us now. It offers to any previous homeowner who has lived in their home for at least the last 5 years the opportunity to sell that home, invest in a new home, and take up to a $6,500 tax credit. That is going to help us boost what is the problem in the U.S. housing economy today, and that is what is called the move-up market. It is the gentleman who is transferred from Delaware with Hercules to Brunswick, GA, who cannot sell his house in Wilmington and cannot buy a house in Brunswick because the markets are so frozen and the move-up market is dead. Now he has an opportunity to sell that house and have an incentive for its purchase in Delaware and an incentive to come and reinvest that money in Georgia in a house in Brunswick. It will make a measurable difference over the next 7 months in our economy.

“We also raised the means test on income from $75,000 to $150,000, which is in the current credit, to $150,000 and $225,000 in the new bill for both move-up buyers as well as first-time home buyers. Those income thresholds will open the incentive to more Americans and I think will show a measurable increase in the amount of business that takes place.

“In response to the Internal Revenue Service concerns we expressed a few months ago on fraud, we put in every single request they made for fraud to see to it the HUD-1 is attached to tax statements, to see to it there is no fraudulent claim of the money, and to see to it the IRS has every tool they can to prosecute to the fullest anybody who would abuse this credit.”

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Pat Fenn

Marketing Specialist for CJ Realty Group/Cindy Jones Broker - Springfield, VA

Honestly not sure the $6500 for current homeowners is going to spur much activity. Guess time will tell.

Nov 05, 2009 09:16 AM

Amanda Christiansen

Christiansen Group Realty (260)704-0843 - Fort Wayne, IN

Christiansen Group Realty

I think the $6500 for current homeowners will get a lot of people off the fence. Great post!

Nov 05, 2009 09:26 AM

Dave Woodland

Signet Mortgage - Bend, OR

Your Bend, OR Friendly, Knowledgable Mortgage Professional

Pat - will the $800,000 limit come into play in your area? Our Central OR office won't be hit, but the Bay Area office will have home purchases that will miss out because of that threshold. But those guys don't need the handout.

Nov 05, 2009 10:15 AM

Jared and Amanda - Get the message out to your fence sitters now. Feel free to send along my post and if you would like to receive these real time by email, just send a note - dave@signetmortgage.com.

BTW, what stadium is in your picture?

Nov 05, 2009 10:17 AM

Anonymous

Nicole

This credit is kind of dumb. We're going to incentivize people to SELL their homes in order to buy a new one? It churns the market and is great for realtors, but it doesn't reduce inventory levels.

Yet, the folks who already sold a house and are sitting on the fence about buying a new one are excluded. Wouldn't it be smarter to get people who have a history of successful home buying back into homeowning? Divorcees, relocatees, nervous nellies...

Nov 05, 2009 11:33 PM

Nicole -

You have good points. But your fence sitter who already sold MAY qualify. The long-term homeowner who qualifies has to have been in a residence for 5 yrs of the last 8 years. So if they did own, then sold and now sit on the sideline, they may qualify.

Here is the actual text of the Act:

"...who has owned and used the same residence as such individual's principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence, such individual shall be treated as a first-time homebuyer for purposes of this section..."

The hope is that this will move inventory at levels beyond the starter-home level. I don't know how effective it will be and you are right, it may not shrink inventory on an overall basis, but it might have the effect of stabilizing prices.

-DW

Nov 06, 2009 02:29 AM

Rick Frissell

HomeXpress Realty - Valrico, FL

aka "The Red Baron of Real Estate"

Excellent post Dave! I have a client about to go to contract with me on a custom built home on their 1 acre property. They currently live in a double wide mfg. home that has been on the property for 20 years. Their plan was, at a minimum to sell the mfg. home once their home is built, but give away, as required by FNMA, within 30 days after occupancy. They will likely have to give it away. The purchase of a custom home stimulates, but does the give away of the manufactured home disqualify the credit?

Nov 09, 2009 02:46 AM

Rick,

The legislative language says that they must have lived 5 consecutive years in the 8 years prior to the purchase date in one principal residence that they owned. The 5 of 8 allows those who have sat on the sidelines for 2 or 3 years to still take advantage of the credit. I don't believe the transaction you describe would hurt their chances for the credit if they meet the other requirements.

Good Luck!

Nov 09, 2009 08:06 AM

Chris

After thinking since we closed on 11/6/09 that we qualified for the credit, I read Tax Form 5405 today and there it is, "AFTER 11/6/09". Even after a spokesperson from the white house http://www.businessweek.com/the_thread/hotproperty/archives/2009/11/sorry_readers_h.html stated it would be effective that day, the IRS decided to use the day AFTER. I would have definitely delayed until Monday, November 9, if I knew this on closing day. According to this article, some senators' offices were apparently confused as well http://www.thinkglink.com/article/2009/11/05/8000-first-time-home-buyer-tax-credit-extended-and-expanded-questions-and-answers I miss out on $6500 by about 8 hours... Now that sucks.

Jan 24, 2010 12:31 PM

$6,500 "Move-Up" Credit Explained by the Senator Who Invented It

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