Homeowner Rescue Plan Is No Free Ride.
July 28th, 2008 Categories: Taxes, Taxes and Taxes
The homeowner rescue plan that many people have been waiting for is almost law.
There is an old expression: Be careful for what you wish for!
A quick review of who gets help and the caveats that many people will not like are noted as follows:
First Time Homeowners:
The law will extend a tax credit up to $ 7,500 for these people. However purchase has to have occurred between April 8, 2008 and before July 1, 2009 (meaning by no later than June 30, 2009).
The CATCH: The tax credit has to be repaid at a rate of $ 500 per year up to 15 years. If the property is sold before that, yep you guess it, the homeowner has to pay the government the remaining balance.
Forgiveness To Allow Re-financing:
If a homeowner falls behind because (for instance) the loan has turned into an adjustable-rate-mortgage, the law encourages lenders to forgive some of the debt in order to re-finance.
The CATCH: There will be an equity sharing arrangement. If it is an FHA loan both the lender and the homeowner will share equally in any profit (appreciation) providing the homeowner maintains the property for five years or more. If less than 5 years, then the lender’s share will increase 10% for each year less than five years.
So if the homeowner sells the home in the second year, any appreciation will be shared with 80%+ going to the lender and 20% (or lower) to the homeowner.
No Resolutions:
Home lines of credit. There is no certainty how this is going to be handled but it may occur that the line of credit will be become a second. The rules however are vague to none. It is something that everyone will have to work through.- Down payment assistance. Good bye to down payment assistance programs such as Nehemiah and AmeriDream.
Property Tax Deduction. This segment of the law helps those that do not itemize deductions on Schedule A. For those that do not itemize the standard deduction will be increased by $ 500 for singles and $ 1,000 for couples filing jointly.
So if you are a couple that pays $ 800 in property taxes you will be able to deduct $ 1,000 under the new law.
Loan limits: Conforming mortgages (Fannie Mae and Freddie Mac) will remain at $ 417,000 until next year and after that it is can be higher. Higher is 115% of the median home prices in the area not to exceed $ 625,500.
FHA-insured mortgages will be $ 417,000; and as in conforming can be increase by 115% of the median home prices in the area, not to exceed $ 625,500.
Reverse mortgages. Insurance salesmen can not originate a reverse mortgage and the law prohibits originators from requiring homeowners to buy annuities or insurance products.
Fees for reverse mortgages cannot exceed 2% of up to $ 200,000. Above $ 200,000 the limit is $ 4,000 plus 1% of the loan amount above $ 200,000.
Manufactured homes. FHA type loans for manufactured homes limits have been increased to $ 70,000 up from $ 48,000.
Service members: If a service member had a mortgage before entering active duty, a lender cannot start foreclosure proceedings until nine months after the service member returns home from active duty.
In addition the interest rate on all previously existing debt are capped at 6%, including home loans. This 6% extends until one year after the service member returns from active duty.
Other items included in the law:
- The Office of Housing Counseling will be established.
- All mortgage brokers will have to be licensed and registered. This will be on a national level.
Your comments are welcomed.
Referenced used for this article is from Bankrate.com through MSN Money.
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