Rob's Rant

Today's post about the Federal Housing Financial Reform Act of 2008 will be about the Tax Incentive portion of the Act.

Who Qualifies?  First-Time Homebuyers.  Oddly enough, this does NOT mean you cannot ever have owned a home before!  If you have not owned Real Estate (including investment homes, Timeshares, land) in at least 3 years, the law considers you a First-Time Homebuyer.

How much is the Credit?  Up to 10% of the sales price of your new home.  The caps are as follows: $3750 per person or $7500 per married couple.  There is also an income cap of $75,000 annual income per person, or $150,000 annual income for a married couple.

How does it work?  This is a Tax Credit, not a Deduction.  So what that means is you are not simply deducting this off your income (like you would for Mortgage Interest or Property Taxes, as two examples).  You take this off your overall taxes paid at the end of the year.  If you & your spouse purchase a $75,000 (or more) home and make less than $150,000, your tax credit should be $7500.  When you file your 1040 Tax Return, Uncle Sam will refund to you that $7500 you paid in over the year--over and above any refund you already would be receiving.  Pretty nice!

What's the catch?  There always is a catch, isn't there?  Here is the catch on this: You have to pay it back at Zero Interest, over the course of the next 15 years.  So in the example of $7500, you would pay back $500 per year to Uncle Sam until the debt was paid.

Anything else we should know?  Yes!  Be careful if you plan to occupy this new home for a brief period of time.  Should you decide to sell, or even move out and rent your home, this event will cause the entire remaining amount you owe Uncle Sam to be due and payable.  Say, after 3 years you have paid back $1500 of the $7500 you took as a Credit.  You decide to rent the place out & buy something bigger.  You should be prepared to write a check to Uncle Sam for the remaining $6000.

If you are a First-Time Homebuyer, or know someone who is, you should strongly consider taking full advantage of this Act.  It technically is not "Free Money".  But it IS an Interest-Free loan from the Federal Government--which in my mind is the next best thing.

Note the Act states the purchase must take place BEFORE July 1, 2009.  Don't wait!

Remember I am not a CPA or an Attorney.  Please do not construe anything I say to be Tax or Legal Advice.  You should consult one or both of these experts to see how this applies to your specific circumstance.  If you do not know any good CPAs or Attorneys, please contact me.  I would be happy to refer you.

You likely are aware that Pres. Bush earlier signed a new law into effect entitled "Federal Housing Financial Reform Act of 2008".  There are several sections to this Act, and today I will be discussing the portion that specifically pertains to FHA loans.  In upcoming weeks I will discuss other portions of this law that will affect you and your mortgage.

Remember I am not an attorney and so please do not construe my Blog as legal advice. 

Here are some of the highlights:

FHA Loan Limit is established at the lesser of 115% of the Median Home Price in a market, and 150% of the current conforming loan limit (as of now that figure is $417,000).  The minimum it can be is 65% of the conforming loan limit.

Remember the DPAs we were talking about?  They have been eliminated.  The HUD Secretary is instructed by Congress to eliminate the DPAs by 10/1/08.  We shall have to see exactly what that deadline means.  The actual language of the Act states "[t]his subparagraph shall apply only to mortgages for which the mortgagee has issued credit approval for the borrower on or after October 1, 2008."  I expect FHA to issue the actual rule change sometime around 8/15/08.  Come back around that time for an update.

The minimum investment from the Buyer has been raised from 3% to 3.5%.  With the exception of the DPAs, however, other sources of Down Payment are specifically still allowed under the Act.  So family, charities, etc. are still allowed to give the money for the 3.5% down payment.

Reverse mortgages have some slight changes under the Act, including limiting origination fees and raising the limit on FHA reverse mortgages to match the limit on normal FHA loans.  There is a prohibition against lenders requiring borrowers to purchase annuities or other products in order to receive a reverse mortgage.  Amazing that one was not already in there!

Energy-efficient mortgages can include up to 5% of the property value for energy-efficient improvements.  FHA will have a 5-year pilot program to allow Automated Underwriting for borrowers with no credit history.  (Currently these loans must be Underwritten manually, unlike everyone else).  And Congress is giving FHA $100 million over the next 4 years to improve their technologies and processes to assist in the elimination of fraud and modernization of the Agency.

The last item is a moratorium until 10/1/09 on any changes in FHA Mortgage Insurance pricing.  FHA had released as of 7/14/08 a risk-based scale--people with better credit and more $ down paid less for Mortgage Insurance through FHA.  This will return to the pre-7/14 levels by 10/1/08.

The item you will hear most about in Arizona is the DPA elimination.  In the short-term this will be painful, however as you have seen in my previous postings, it seems to me this will be a good thing for all of us in the long run.

I hope this is helpful to you.  Should you wish to read the new law, here is a Link to it:

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h3221enr.txt.pdf 

If you have any questions about the specifics of your situation, please contact me directly.