UPDATE – It’s official. President Obama signed the bill on Friday November 6th and the bill is now law.

As expected, the Senate has now passed the bill extending the home buyers tax credit and expanding it so that move up buyers will also now qualify. The tax credit was an add-on to a bill that extends aid to the long term unemployed, and it passed by a 98 to 0 margin (you don’t see that very often these days). The current first time home buyers tax credit was due to expire at the end of this month. The new bill will extend the date to properties that are under contract by the end of April, and they will have until the end of June to close. It also expands the credit (at $6,500 instead of $8,000) to move up buyers who have lived in their homes for at least five consecutive years out of the last eight. The bill won’t become a law until it is signed by President Obama, but this is sure to happen soon.

This extension won’t give an immediate boost to the market. Most of the first time home buyers who were ready to buy have already taken advantage of the credit or are in process and set to close by the end of November. The season is also a factor, as December is usually the slowest month of the year for real estate sales. Most home buyers take a break during the holidays, and the cold weather (at least here in the Chicago area) keeps more home buyers indoors. I don’t think this will bring in a flood of move up buyers, either. In order for a home owner to buy a second or move up home, they will need to sell their current home first. A big part of the first time home buyers market is focused on the short sales and foreclosures, which takes inventory off the market, but doesn’t lead to a new sale higher up the chain. Still, this will help the Spring market get off to a faster start, and it could cause some fence sitting home owners to make the plunge and start looking for a new bigger home, which meets their current needs.

Here are the details of the New Home Buyers Tax Credit:

1. The credit is for 10% of the purchase price up to a maximum of $8,000 for first time home buyers and up to $6,500 for qualified move up buyers. This means that if you are a first time home buyer and your purchase is $80,000 or more, the credit will be $8,000.
2. The credit is good for properties that are under contract by April 30^th and you have until the end of June to get the financing together and close.
3. It is now available for first time home buyers (a first time home buyer is anyone who hasn’t owned a home in the last 3 years) and move up buyers who have lived in their home for 5 consecutive years out of the last 8.
4. The home has to be for your primary residence. Second homes and investment properties don’t qualify.
5. This is a true tax credit. As long as you stay in the home at least 3 years, the credit is yours to keep. If you sell before 3 years is up, you may need to pay the credit back.
6. If your tax liability is less than the $8,000 credit ($6,500 for move up buyers), 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 in the current year and get the money back quicker.
7. Income caps apply. They have increased the income caps so more home buyers will now qualify. A single buyer qualifies as long as they earn up to $125,000 per year, and couples are maxed out at $225,000 per year. Higher earning borrowers may get a partial credit, but the amount decreases as their income rises.

To take advantage of the credit you will need to file an IRS 5405 form along with your HUD1 closing statement showing that you have closed on the home. If you have any questions or need to be pre-approved for a mortgage, let me know.

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