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First-time homeowners, those facing foreclosure, to benefit from new housing law

Congress has passed an ambitious housing bill and the legislation is expected to be signed into law by President Bush. Here are some of the provisions:

Facing foreclosure?

The law will enable homeowners who can't make their mortgage payments to refinance into more affordable, fixed-rate loans insured by the federal government.

The Federal Housing Administration will be able to guarantee up to $300 billion of such loans, enough to modify an estimated 400,000 mortgages, according to U.S. News and World Report.

To participate, lenders will have to write down the original loan balance and take a financial loss.

First-time home buyers

First-time home buyers will be eligible for a tax credit worth as much as $7,500.

The credit, however, isn't a grant, but essentially an interest-free loan that must be paid back over 15 years. Still, it can be quite helpful when purchasing a home.

The outstanding balance must be paid back to the government if the property is sold for more than the original purchase price and the tax credit hasn't been fully repaid.

• The $7,500 tax credit is available for first-time home buyers only.

• The law defines a first-time home buyer as a buyer who has not owned a home during the past three years.

• All U.S. citizens who file taxes are eligible to participate in the program.

There are income limits:

• Home buyers who file as single or head-of-household taxpayers can claim the full $7,500

credit if their adjusted gross income (AGI) is less than $75,000.

• For married couples filing a joint return, the income limit doubles to $150,000.

• Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit.

• Married couples who earn between $150,000 and $170,000 are eligible to receive a

partial first-time home buyer tax credit.

• The credit is not available for single taxpayers whose AGI is greater than $95,000 and

married couples with an AGI that exceeds $170,000.

When does it take effect?

• First-time home buyers would receive a $7,500 tax credit for the purchase of any home on or after April 9, 2008 and before July 1, 2009. To qualify, you must actually close on the sale of the home during this period.

Tax credit is refundable

• A refundable credit means that if you pay less than $7,500 in federal income taxes, then the government will write you a check for the difference.

• For example, if you owe $5,000 in federal income taxes, you would pay nothing to the

IRS and receive a $2,500 payment from the government.

• If you are due to receive a $1,000 tax refund from the government, your refund would grow to $8,750 ($1,000 plus $7,500 from the home buyer tax credit).

• Buyers can take the tax credit in their 2008 or 2009 tax return.

• If you purchased the home in 2008, the tax credit is taken on your 2008 tax return. If you

buy in 2009, you have the option of taking the credit on your 2008 or 2009 tax returns.

All homes qualify

• All homes, whether single-family, townhomes or condominium apartments will qualify, provided that the home will be used as a principal residence and the buyer has not owned a home in the prior three years. This also includes newly-constructed homes.

Payback rules

• The tax credit essentially serves as an interest-free loan to be repaid over 15 years.

• For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per

year. If the home owner sold the home, then the remaining credit would be due from the

profit of the home sale.

• If there was insufficient profit, then the remaining credit payback would be forgiven.

Something for seniors

A provision in the legislation that increases the limit on certain reverse mortgages stands to benefit senior citizens.

A reverse mortgage is a type of loan -- collateralized by a house -- available to homeowners ages 62 and up.

The loan allows homeowners to obtain monthly payments or a lump sum of cash based on the value of the property.

The legislation boosts the cap on the Federal Housing Administration reverse mortgage program to as high as $625,000.

Help for the low-income

The legislation also creates a permanent housing trust fund to benefit low-income housing.

"The funds from the trust fund would be allocated to the states, which would use the money to produce and preserve affordable housing focused on the lowest-income households," Linda Couch of the National Low Income Housing Coalition, told U.S. News and World Report.

"Low-income advocates see that section as a real victory."

Couch says the fund could have as much as $600 million by 2011 from its original funding sources, Fannie and Freddie.