A new housing bill that was targetted for submission to the White House for signature has been stalled in Congress (surprise, surprise), so we probably won’t get a look at the final version until after the holiday. One provision in the bill as currently written is an $8,000 tax credit for first time home buyers.
Tax credits really make a difference in your finances because they offset your tax liability dollar-for-dollar. So if your taxes for 2008 would normally be $9,000, and you get an $8,000 tax credit, your liability for 2008 drops to $1,000, probably resulting in one whopping tax refund check.
This provision, if enacted, could help new buyers, the housing market, and the economy in a number of ways. First, by providing an incentive to new buyers it gets them off the fence and into the housing market, which should help stabilize prices in some of the hardest-hit markets in the country. Stable prices should help halt the wave of foreclosures, and increased demand for homes should help get foreclosed properties off lenders’ books and into the hands of caring owners.
More importantly, the credit could actually give these buyers a financial safety net, a cushion of savings against bad luck, making these people less risky to lend to. So what does this mean to borrowers with bad credit? What should you be doing if you have bad credit?
First, assess how bad your credit is and work on improving it. Even six months of timely payments can make a difference. Check out mortgage calculators and see what price and payment is realistic for you. If that payment is higher than what you currently spend for housing, practice paying more–take the difference between your current rent and your future mortgage payment and stick it in savings or use it to pay down bills. The result is less payment shock to you when you buy your home and a better-looking application, with more assets or less debt.
While it’s true that lenders have tightened up standards and it is harder to qualify, there are other forces at work. Motivated sellers may be willing to contribute to your closing costs, helping you buy your rate down to a manageable figure. And clearly the government wants to get first-timers into the market. Check back here to see what the bill looks like once it passes, and to see how it affects you. Then, find a lender you trust who can walk you through the process of working with this new legislation and get you into a home.
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Is there any provision for homeowners who aren’t first timers proposed in the bill?
The fine print is that the $8,000 maximum on the new tax credit is for married home buyers. Singles get about $4,000. So I guess the thing to do is hurry up, get married, and buy a house for the first time.
That’s if the bill passes. The White House wants to veto this plan, I guess we’ll have to see what happens. Do you have any insight into why they might not want to pass the bill?
Are you still considered a first time home owner if you owned a home a long time ago, but haven’t owned for about eight years or so?
Great question Mary,
According to The Washington Post, the veto threat stems from the fact that until now taxpayers have been insulated from the consequences when Fannie Mae, Freddie Mac, or FHA loans go sideways. Mortgage insurance had in the past been sufficient to cover losses, and one foreclosure in a neighborhood didn’t lead to others.
The new financing options created by the bill could potentially be footed by taxpayers if loans get refinanced out of private lending and into government-backed mortgages like FHA programs–hence the opposition of the president. However, it appears that the costs of the housing downturn are being born by taxpayers now, in blighted neighborhoods, in unemployment, in higher lending costs and decreased accessibility to funding, in uncertainty and in distrust. So someone is going to pay somehow. The question is who and when.
Clark, Gary, and Joan,
Thanks for the questions. They let me know what information to zero in on when I research and write the next post. I’m going to do a new post on defining “first time” homebuyers and one on the bill once it gets through and we have a final version (including provisions for non-first-timers next week).
Thanks again and have a wonderful weekend!