My Real Estate Blog

The Housing and Economic Recovery Act of 2008 was recently passed into law. While there is a lot of information to share, here are a few things that could impact you or someone you know right away.

The first thing that stands to impact many home buyers is the elimination of what is known as seller down payment assistance programs for FHA loans. Seller down payment assistance is where a seller contributes money to a down payment assistance company (i.e. Nehemiah), who in turn provides a legal grant to the home buyer.  Seller DPA has helped over 900,000 families obtain homeownership since 2000.

Seller down payment assistance will be eliminated effective October 1, 2008.  To use Seller DPA final underwriting must be completed by September 30, 2008.  Two out of every three FHA loans are currently using Seller DPA so it is important to act now!

That said, if you or someone you know needs Seller Funded Down Payment Assistance in order to buy a home, act quickly! 

The other important piece included in this legislation is it provides first-time home buyers with a tax credit of up to 7,500!  The tax credit will be 10% of the purchase price of a home, up to a maximum of the full $7500 credit. The tax credit is really an interest free loan since will have to be paid back over a period of 15 years but this will certainly help many first time home buyers.

First-time buyers and those who have not owned a home in the past three years will receive a $7,500 tax credit if they purchased a home on or after April 9, 2008 or if they purchase one before July 1, 2009.

Income limitations are:

Married couples with incomes less than $150,000 qualify for the entire tax credit. The tax credit phases out for married couples with incomes between $150,000 and $170,000. Couples with incomes exceeding $170,000 do not qualify for the tax credit.

Singles with an income less than $75,000 qualify for the entire tax credit. The tax credit phases out for singles with incomes between $75,000 and $95,000. Singles with incomes exceeding $95,000 do not qualify for the tax credit.

• The tax credit is really an interest free loan from the government that must be paid back over fifteen years, in increments of $500 a year.
• If you die, your heirs do not have to pay back the remaining balance.
• If you sell your home before fifteen years have passed and your home’s appreciation is less than the amount you have to pay back, the loan is forgiven.
• If you convert your home into a rental property, you must pay back the balance due.

FHA will help homeowners who owe more than their homes are currently worth.  This program will provide relief for owner occupants only.  Investors or borrowers who own second homes cannot participate in this program.  This program will begin October 1, 2008 and end September 2011.

Mortgages must have been originated prior to January 1, 2008.

Borrowers must meet these requirements:

• Their mortgage must have originated on or before January 1, 2008
• Their mortgage debt-to-income must be at least 31 percent
• They cannot afford their current loan
• They did not intentionally miss mortgage payments
• They do not own second homes.

Loan Features:

• 30-year, fixed rate mortgage
• Maximum 90 percent loan-to-value ratio
• No prepayment penalties
• Extinguishment of any subordinate liens
• New home appraisal required by FHA-approved appraisers

Current Lien Holder's Participation:

The lien holder will be encouraged to work with the borrower to write down the mortgage to no more than 90% of the current appraised value.  For example, if a borrower owes $300,000 but the home is worth $250,000, the qualified borrower will receive a new loan for 90% of the appraised value or $250,000, which equals $225,000. The $75,000 difference would be forgiven.

FHA will share equity in the property going forward, on a sliding scale.