First-Time Homebuyer Credit Extended to April 30, 2010; Some Current Homeowners Now Also Qualify
WASHINGTON — A new law that went into effect Nov. 6 extends the first-time homebuyer credit five months and expands the eligibility requirements for purchasers.
The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.
The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.
But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.
For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.
A new version of Form 5405, First-Time Homebuyer Credit, will be available in the next few weeks. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return.

A taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405.
Income Limits Rise

The new law raises the income limits for people who purchase homes after Nov. 6. The full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.
For homes purchased prior to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000, or $150,000 for joint filers. Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.
New Requirements

Several new restrictions on purchases that occur after Nov. 6 go into effect with the new law:

• Dependents are not eligible to claim the credit.
• No credit is available if the purchase price of a home is more than $800,000.
• A purchaser must be at least 18 years of age on the date of purchase.

For Members of the Military

Members of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011.

For more details on the credit, visit the First-Time Homebuyer Credit page on IRS.gov. or watch the IRS video below.

The first time home buyer tax credit has been extended and expanded. The $8,000 credit has been extended by six months.  There has also been an expansion to include current home owners who want to buy.  Sorry, nothing for Investors.  Current home owners can get a $6,500 tax credit when they purchase a new home. This is pretty similar to the article we posted earlier on the $8,000 Tax Credit.

• The credit is available for homes that go under contract by April 30, 2010 and CLOSE by June 30th, 2010.
• If you are a current homeowners, you can claim a $6,500 credit as long as the property you are vacating has been your primary residence for at least five consecutive years.  
• For the Rich there are Income limits: $125,000 a year for individuals, $225,000 a year for married couples.  
• Homes that cost more than $800,000 aren’t eligible for the credit. Again, sorry to the rich folks. 
• $6500 tax credit is not retroactive. What that means is that you only get the credit if you purchase a home after the Bills is effective.

Last night the Senate voted cloture on a bill that includes the extension of the first time home buyer tax credit.

This is not the final vote, however it effectively solidifies the plan to extend the $8000 first time buyer credit through April 30th and expand the credit to move-up buyers on a smaller $6500 scale.

The extension is an expansion, giving some move up buyers $6500 more in purchasing power, but that's only up to the income cap of $150,000 for single filers and $225,000 for joint filers...again, covering an awful lot of Americans, but not everyone. Why not make it available to Investors who could then buy some of the dilapidated properties and repair them?

So is this a good thing or just another prop up that will ultimately just prolong the housing problems?

Sure it is going to create some more sales but the credit only extends primarily through the winter/slow housing season. How are move up buyer going to participate when they can’t purchase the new home until they unload the current one. It may take them until next spring to find a buyer.

While a lot of this focus has been on First Time Home Buyers, the real money to get the economy moving is with the move up buyers and Investors. The inventory of homes at the lower end of the market is mostly junk. Poorly cared for properties that need lot of work. First Time Buyers don’t want this stuff but an Investor might? With an almost 10% unemployment many of the newer foreclosures are happening in the higher bracket between $250,000 and $500,000. With the income caps of the program this will eliminate a chunk of this market.

Let’s stop being cheap on the programs and making a bunch of political statements about all the people that are going to benefit and then find out only a handful made it work. Put the program out for all to use with reasonable deadlines. Not everyone will take advantage of it but that’s their choice. Ultimately is will reduce the inventory of unsold homes which will lead to higher demand.

Economics 101 --more demand = higher prices

Here is the direct quote from HUD Secretary Sean Donovan’s May 29, 2009 press release: “Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate.” (emphasis added)

HUD has re-published Mortgagee Letter 2009-15 entitled “Using First-Time Homebuyer Tax Credits”. Remember, they originally published it then recanted. This Mortgagee Letter does have some changes that provide the regulatory framework for monetizing the $8000 first time homebuyer tax credit. However, it will be interesting to see if the public can make this possible.

While HUD's announcement does set out a framework for the policy, HUD does not provide the money. That is obviously going to be an issue making this program work. Don't run out and purchase a home thinking you are going to have a check waiting for you.

So who can come up with the money for the buyer? Non-profits or lenders could but, coming up with the money to make these loans when the tax credit proceeds cannot be assigned to a third party is very slim. (another nice provision) This would require that the non-profits or lenders advance the money to the buyer in hopes that the buyer, who is not obligated to, hands over their tax refund check when they get it. With the old seller paid down payment assistance(you know the one's that are now prohibited, the borrower never put their hands on the money. With this plan, the non-profits or lenders who would provide a second lien would have to hope they got repaid when or if the tax credit money arrives.

What about State Agencies? Gee about everyday you here how they don't have any money either.

The Mortgagee Letter also specifically points out that according to “12 U.S.C. 1709(b)(9), the homebuyer’s downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity).”

In English this means, the borrower must still contribute 3.5% of their “own money” into the transaction. Of course, as was always the case, this can be a gift from a relative or similar close relationship. So this really does nothing for providing the downpayment. The borrower must still have "Skin" in the transaction.

The proceeds from this monetization can be used for additional down payment or to buy down the interest rate or to pay closing costs. The best use of the money will be dictated by the transaction. For example, many borrowers who are “on the borderline” of approval through the automated underwriting system may be able to change the decision to an approval with a little additional down payment. Other people (i.e. those who definitely plan to stay in the house for a very long time) would be better off paying down the interest rate with the “free money” from the tax credit. Borrowers who know they are going to move in a few years, and who can get the seller to pay all the closing costs may be better off waiting to receive their tax refund the normal way by waiting until they file their next tax return. The tax credit money can simply be put into the bank for a rainy day.

So while a lot of press has been generated, the reality is that there will probably not be any big rush to buy homes because the people the can buy don't have any money and the people the want to move and buy a new home can't sell the one they have.