New Stimulus Bill: What You Need to Know

On February 17, 2009, President Obama signed into law the American Recovery and Investment Act of 2009, a $789 billion economic stimulus bill. With more than 700 pages of legislation, the stimulus bill seems to have addressed everything from homelessness to home-buying incentives. But here we'll focus only on the provisions that directly affect the mortgage/housing industry.

$8,000 tax credit – First-time home buyers (anyone who hasn't owned a home in the last three years) can claim a tax credit worth up to $8,000 (or 10% of the home's value, whichever is less) on their 2009 taxes for a primary residence purchased between January 1, 2009 and December 1, 2009. Unlike the $7,500 credit from the previous stimulus bill, this is a true tax credit, in that it doesn't have to be repaid, as long as the buyers remain in the home for at least 3 years. (Remember that a tax credit is very different than a tax deduction: a tax credit is equivalent to money in your hand, as opposed to a tax deduction, which only reduces your taxable income.) The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.

It's not the $15,000 credit that Lawrence Yun, chief economist for the National Association Realtors (NAR) wanted to see. But, Yun said, "The $8,000 credit will bring an additional 300,000 new homebuyers into the market. The credit could also create a domino effect," he said, "because each first-time homebuyer sale will lead to two more trade-up transactions down the line." See NAR's detailed comparison between the $7,500 and $8,000 tax credits.

Qualified buyers can apply for the credit on their tax returns in 2009. There is, however, some confusion regarding whether this can be included on 2008 tax returns. Some sites are saying you can, while others are not sure. A final IRS ruling is needed to confirm this. If the IRS rules in favor of this option, qualified taxpayers who have already completed their returns and filed for the $7,500 credit can file amended returns for 2008 to claim the credit. Please consult your tax professionals because, according to a representative from the IRS that a mortgage industry spokesperson consulted with in January, e-filing taxes may be difficult or even prohibited if the credit is taken by taxpayers.

Although the building industry was pleased with the $8,000 credit, a $15,000 credit "would have done a lot more to turn around the housing market," said Bernard Markstein, an economist and director of forecasting for the National Association of Homebuilders (NAHB). The NAHB put out a comprehensive FAQ sheet that can help answer specific questions about the tax credit you might have.

Loan Limits Increased in High Cost Areas – The new economic stimulus restores the higher conforming loan limits of $729,750 created by the 2008 stimulus bill for FHA and conventional loans. Reverse Mortgage Loan Limits increased to $625,500 nationally.

Neighborhood Stabilization – the new bill provides $2 billion the Neighborhood Stabilization Program (NSP), which was created by the Housing and Economic Recovery Act of 2008 to address the problems that can be created in foreclosure-ridden neighborhoods. According to U.S. Housing and Urban Development, "The NSP Program also seeks to prevent future foreclosures by requiring housing counseling for families receiving homebuyer assistance. In addition, the Agency seeks to protect future homebuyers by requiring States and local grantees to ensure that new homebuyers under this program obtain a mortgage loan from a lender who agrees to comply with sound lending practices."

Energy Efficient Housing Tax Credits & Grants - homeowners will be able to claim a 30% tax credit for purchases of new furnaces, windows and insulation through 2010.

Broadband Deployment – Why should we care about this? Because a 2006 Commerce Department report determined that property values are 6% higher in communities where broadband is available.

Other provisions funded Rural Housing Service, Transportation Investments, Low Income Housing Grants, Tax-Exempt Housing Bonds, all of which benefit our communities by increasing or helping to stabilize housing values throughout the country.