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The Economic Stimulus Bill Includes Help for Homeowners
There are several pieces of the bill that benefit homeowners.
For Buyers:
An $8,000 tax credit will be available to first-time homebuyers who make a qualified purchase of a principal residence between January 1, 2009 and September 1, 2009 (NOTE: you may qualify as a first-time homebuyer if you have not owned a principal residence for the past three years). This benefit phases out for people making more than $75,000 individually or $150,000 jointly.
Second, the conforming loan limits will be raised to $729,750 in certain high cost areas (mainly in California). A high cost area is determined by the median sales price in the home’s Metropolitan Statistical Area (MSA), and in order to reach the $729,750 loan limit the median sales price in your area would have to be at least $583,800.
For Current AND Future Homeowners:
Mortgage interest deductibility has been preserved. Taxpayers who itemize deductions (i.e. do not claim the standard deduction) can deduct the qualifying interest paid on mortgage balances up to $1 million.
Capital gain exclusion has also been preserved. Individuals can exclude up to $250,000 ($500,000 for a couple) in realized capital gains on the sale of a principal residence from taxable consideration.
Finally, today, President Obama unveiled a $75 billion plan to aid homeowners at risk of foreclosure through a variety of forms of assistance.
First, the program provides federal funds to incent mortgage servicers to refinance existing loans for borrowers who owe more than 80% of their home's value. Typically, lenders do not refinance borrowers who have less than 20% equity in their homes, but beginning March 4th, homeowners who are current on their payments and whose loans are held by or guaranteed by Fannie Mae or Freddie Mac will be eligible to refinance into a 15-year or 30-year fixed-rate mortgage at the current market rate (around 5%). Of note, the new mortgage cannot exceed 105% of the CURRENT market value of the home.
Second, the program will also subsidize interest rates in order to reduce monthly payments for at-risk borrowers (known as the Homeowner Stability Initiative). Loan servicers would receive federal funds (via a new insurance fund established by the government and the FDIC) to either reduce interest rates so that the homeowner's monthly payment is no more than 38% of their income OR reduce loan balances to achieve the same affordability level. Eventually, the goal would be to reduce monthly payments to no more than 31% of a borrower's monthly income if they remain current on their payments. Homeowners with total debt (including credit cards, education and auto loans) equal to 55% of their monthly income would have to enter a debt-counseling program in order to qualify for loan modification.
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