Yesterday President Obama signed into law the $787 billion dollar Recovery and Reinvestment Act – the economic stimulus package. This huge bill is a mix of infrastructure spending and focused tax cuts with the goal to get the money into the economy quickly and fill part of the hole left as a result of the deepening credit crunch. Some of the spending will take a long time to be felt, other parts will have an immediate impact. Here is a link to the White House site showing how all the money will be spent : http://www.recovery.gov/.

There is one part of this bill that will affect the real estate market, an alteration of the First Time Home Buyer Tax Credit passed last year. The new bill increases the credit from a maximum of $7,500 to $8,000 and makes it a true credit instead of a no interest loan. This won’t by itself be enough to jump start the real estate market, but if you are a first time home buyer who has been considering buying a new home this year, it should be enough to knock you off the fence and is a major incentive to buy.

Here is how it will work:

1. The credit is for 10% of the purchase price up to a maximum of $8,000. This means that if your purchase is $80,000 or more, the credit will be $8,000.
2. It is available only for first time home buyers. By their definition, a first time home buyer is anyone who hasn’t owned a home in the last 3 years.
3. The home has to be for your primary residence. Second homes and investment properties don’t qualify.
4. This is a true tax credit. The original bill released last year gave buyers a credit the first year, but they had to pay it back over the next 15 years ($500 per year). If they sold their home in that period they would have been liable for the amount of the credit they hadn’t paid back. This new version makes it a true credit as long as you stay in the home at least 3 years. If you sell before 3 years is up, you may need to pay the credit back.
5. If your tax liability is less than the $8,000 credit, you will get the difference as a check back to you. If you have already filed your taxes, you can file an amended tax return in order to take the tax credit this year and get the money back quickly.
6. Income caps apply. A single buyer qualifies as long as they earn up to $75,000 per year, and couples are maxed out at $150,000 per year.
7. This credit applies retroactively from January 1, 2009 to December 1, 2009.

If you are a first time home buyer or are considering buying your first home this year, this is a big incentive to buy now. This should be a great year for first time home buyers anyways. Home prices are down and inventory is high. Many first time buyers are buying foreclosure or short sale properties, and there are definitely deals to be made. Interest rates are also near their lows, and with FHA financing you can still buy with a low down payment. If you are thinking of buying and want to see how much of a mortgage you can qualify for, check with your loan officer or give me a call.

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