One of the highlights of the bill waiting to be signed by Bush is a tax credit of up to $7,500 for first-time home buyers, but according to the bill, the tax credit has to be returned in installments over 15 years. As you read the fine print, a recent
MarketWatch report shows the direct benefits for consumers do not seem to be adding up to all the hoopla surrounding this piece of legislation. In addition to the tax credit, here are some of the measures that will directly affect consumers:
- FHA foreclosure rescue: Borrowers at risk of foreclosure may be able to refinance into a more affordable loan backed by the FHA. But there are conditions. In the program, lenders write down the loan balance to an amount that doesn't exceed 90% of the current appraised value of the home. To qualify, borrowers need to have a mortgage debt-to-income ratio of at least 31%. The catch: Borrowers who participate in this program will be penalized if they want to refinance or sell the home in the next five years
- FHA modernization: The bill allocates money to improve the way FHA works, and also increases the loan limit for FHA loans -- While FHA loans were always available, people often didn't use them because the approval process could be difficult. One point that could have a negative impact on sales: Seller-funded down-payment assistance got eliminated , removing that option for buyers who had difficulty coming up with a down payment
- Expanded standard deduction for homeowners: An additional standard deduction for homeowners is also included in the bill, providing a standard deduction of up to $500 for single filers and $1,000 for those filing jointly. This will likely affect a subset of homeowners who don't itemize, including those with small mortgages, retirees whose homes are paid off or first-time buyers who bought late in the year.
- Increased conforming loan limits: Conforming loan limits were temporarily raised earlier this year, but that hike was set to expire in December. Starting next year, the limit will be $417,000 or 115% of the local median price, up to $625,500. Conforming loans are those that can be purchased by Fannie Mae and Freddie Mac. That doesn't necessarily mean, however, that larger loans will have much lower rates than they would have if they were nonconforming jumbo loans; the measure doesn't take into account how the markets will respond to the larger conforming mortgages
