Mortgage Topics

President Obama signed into law the $787 billion American Recovery and Reinvestment Act 2009, today in Denver, Colorado.

There are four primary sections of the economic stimulus pan that could be very beneficial if you own or are buying a home.

Benefit 1: Expansion of Home Improvement Tax Credit

The tax credit for making energy efficient home improvements is now 30% of the cost of the improvements up to a maximum of $1,500. This means that if the improvements cost you $4,500 you would receive a tax refund of $1,500 when you file your tax returns. Eligible improvements include energy efficient exterior door and windows, insulation, heat pumps, furnaces, central air conditioners and water heaters. Generally, your home improvement contractor and/or the manufacturer selling the improvements issues a certification that clarifies whether the improvements meet the necessary standards for energy efficiency. Most modern windows, furnaces, and air conditioners meet these requirements.

If you have been holding off on making some of these improvements, now is a great time to move forward, especially with some great deals that are being currently offered.

Benefit 2: $729,750 FHA and Higher Conforming Loan Limits Restored in High Cost Areas

As we reported in our blog yesterday, the $729,750 maximum loan limit has been restored as part of the economic stimulus plan. This limit was in force for the majority of 2008, but was reduced to $625,500 starting January 1, 2009. This makes higher cost homes more affordable, especially in the Bay Area and other coastal housing markets that tend to have higher than average home values.

Benefit 3: Expansion of First-time Home Buyer Tax Credit

The tax credit available to first time home buyers was increased from $7,500 to $8,000 for homes purchased between January, 1, 2009 and December 1, 2009. Also, the credit no longer needs to be paid back as long as you live in the home without selling it for at least 3 years. The previous version of the credit expired on July 1, 2008, and required home buyers to pay the funds back over a 15 year timeframe.

The income limitation remains the same - $75,000 for single tax payers claiming the full credit and $150,000 for married tax payers – as do most other qualification requirements. Also, the credit remains refundable. This means that first-time home buyers who owe less than $8,000 in taxes for the year are still eligible for the full $8,000 credit when they file their tax returns. In that case, the IRS will write you a check for the difference between $8,000 and your actual tax bill. In fact, the credit can be claimed on your 2008 tax returns that you file by April 15, 2009, even if you buy the home in 2009.

There is one catch, however: If you bought the home in 2008, the credit remains $7,500, and it still needs to be paid back over a 15 year timeframe beginning in 2011 when your file your 2010 tax returns.

Benefit 4: Higher Reverse Mortgage Loan Limits

The loan limits for FHA-insured reverse mortgages have been increased to $625,500 across the entire country – not just the higher cost areas. The previous limit was $417,000 across the country. This is especially important because the FHA program is virtually the only mortgage loan option available as private and jumbo reverse mortgage programs have nearly all evaporated.

This coincides with another little know change in the reverse mortgage arena: the availability of reverse mortgages on home purchase transactions. This is a fantastic opportunity for senior citizens to buy a new home and live mortgage payment-free without having to wait for their old home to sell. Seniors could also use this strategy to buy a new home and turn the old home into a rental or otherwise wait for market conditions to improve before trying to sell the old home.

To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. federal tax advice contained in this communication was not intended or written to be used, and cannot be used, by any person for the purpose of (i) avoiding tax related penalties or (ii) promoting, marketing, or recommending to another person any transaction or matter addressed in this communication. Also, it is important to note that we are providing this information to you as your mortgage planners, in order to make you aware of information that may benefit you. We are not investment, tax, or legal advisors, and this information does not constitute legal, tax, or investment advice.

As first reported by us in our Janaury 2009 newsletter, The American Recovery and Reinvestment Act of 2009, to be signed into law by President Obama tomorrow in Denver, will temporarily revert the current loan amounts/levels back to $729,750 in high cost areas.

After the President signs the bill into law, three things MUST happen before lenders can accept applications with higher loan amounts (between $417,000 and $729,750):

1. Fannie Mae and Freddie Mac (the agencies) and FHA  must determine whether the pricing, policy and/or delivery requirements will be changed.

2. The agencies must report their requirements to mortgage lenders.

3. Lenders must identify impacts caused by the agencies' and FHA's requirements and implement the changes.

Stay tuned for further information on dates and specific changes to the higher balance conforming loans.