Housing Act Offers Promise For Homeowners
While much attention has been paid to the recently approved “Bailout Bill” for Wall Street, there’s another important Congressional act passed this summer that’s going to have an impact on the housing market.
The Housing and Economic Recovery Act of 2008, enacted in July, contains provisions that will transform major aspects of the mortgage industry.
The following are the major changes that should create important opportunities for the Massachusetts homeowner:
1. FHA (Federal Housing Association) Loan Program. FHA financing has risen in the last couple of years and more than 30 to 40 percent of loans processed today are FHA. This number is expected to increase in the next several years.
Congress has modernized the FHA bringing in several good things for home buyers and homeowners and these changes are expected to fuel the increase in FHA loans. Some of the benefits of an FHA loan include a minimum down payment, sellers concessions, no income limits and no minimum credit score (although most lenders require a score of 600).
2. Tax Credits. First time buyers and people who have not owned a home in the past three years will get a $7,500 tax credit if they purchased a home on or after April 9, 2008 or if they purchase one before July 1, 2009.
There are some income limitations. Married couples with incomes less than $150,000 qualify for the entire tax credit. The tax credit phases out for married couples with incomes between $150,000 and $170,000. Couples with incomes exceeding $170,000 do not qualify for the tax credit.
Singles with an income less than $75,000 qualify for the entire tax credit. The tax credit phases out for singles with incomes between $75,000 and $95,000. Singles with incomes exceeding $95,000 do not qualify for the tax credit.
The tax credit is really an interest-free loan from the government that must be paid back over 15 years, in increments of $500 a year.
Other benefits include a provision that says if you die, your heirs do not have to pay back the remaining balance. Or if you sell your home before 15 years have passed and your home’s appreciation is less than the amount you have to pay back, the loan is forgiven. Finally, if you turn your home into a rental or investment property, you must pay back the balance due.
3. Hope for Homeowners. The bill helps homeowners who are currently upside down on their homes and owe more than their homes are now worth. Mortgages must have been originated prior to January 1, 2008. In order to qualify, borrowers must certify that they did not default intentionally and have a debt-to-income ratio over 31 percent as of March 2008.
The lien holder will work with the borrower to write down the mortgage to no more than 90 percent of the appraised value. For example, if a borrower owes $300,000 but the home is worth $250,000, the borrower will receive a new loan for 90 percent of $250,000, which equals $225,000. The $75,000 difference is forgiven.
The Housing and Economic Recovery Act is an important piece of legislation that has many provisions that will aid in repairing the state and nation’s housing market. n
William Murphy is the owner of Fairway Mortgage in Auburn. He can be reached at wmurphy@fairwaymc.com.
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