The stimulus bill passed in February provides first-time home buyers a tax credit equal to 10 percent of the home's purchase price or up to $8,000, whichever is less, when they file their taxes. Since then, new buyers using FHA-insured loans will be allowed to treat the tax credit as additional down payment funds, or use it to pay for the closing expenses. That program < HERE> was set to expire November 30th. As it gets closer to that date some consumers trying to come up with the necessary funds may be fearful that time will run out, dashing their dreams of owning their home. With recent improvements in the housing market, declining inventory and other positive metrics, Congress should see the long term value in extending the Tax Credit.
Senate Majority Leader Harry Reid said he expects congress to extend the tax credit by the end of the year. Reid envisions maintaining the credit at the $8,000 level. He said there has been an effort to make the credit available to those other than first-time homebuyers, but acknowledged that may be a steeper climb.
Do I Hear $15,000?..... Raising The Ante
The Home Buyer Tax Credit Act of 2009, introduced by Sen. Johnny Isakson (R-Ga.), would raise the tax break from $8,000 to $15,000, or 10 percent of the home's purchase price, whichever is lower; remove income restrictions - the current credit is available only to households making $75,000 or less - and extend it to all home purchasers, not just first-timers.
Bankers say that increasing the first-time buyer program would go a long way toward stimulating home sales and, in turn, the economy. Jay Brinkmann, the chief economist at the Mortgage Bankers Association, estimates that just upping the tax credit to $15,000 would lead to an additional 400,000 home sales.
I am Not Buying, What's In It For Me?
This is not only good for first-time buyers but possibly all homeowners.
1) As first timers move into the market it takes pressure off the resale inventory. To the extent that existing homeowners who want to move up probably have to sell their existing home, this new policy can have a dramatic impact. Recently up to 40% of all home sales have involved first time buyers.
2) See all those foreclosures in your town or subdivision? They are weighing down the value of your home even if you can't see it happening. First-Timers generally buy at the low end of the market and will absorb these abandoned homes.
3) Studies have shown that first-time buyers have a significant impact on the local economy and contribute in other socially positive ways.
4) A thriving resale market helps maintain home prices as they recover from the recent downfall.