Expanded Home Buyer Tax Credit Likely

Posted by: Jane Sasseen on October 28

From our colleague Prashant Gopal:

It’s increasingly likely that Congress will extend and expand the popular home buyer tax credit, which will expire next month. CNN.com reported today that a compromise proposal based on bills that have already been introduced could pass the Senate as early as this week (assuming that it is attached to a bill to extend unemployment benefits).

The compromise bill would likely open the program to some existing homeowners. The expiring tax credit is limited to buyers who have not owned a home for at least two years.

According to a CNN.com story today:

* First-time buyers could continue to claim up to $8,000. But existing homeowners who have lived in their home for five years could receive up to $6,500 if they trade up to a larger principal residence.

* The full credit would be limited to buyers who earn less than $125,000 a year and for married couples with annual incomes up to $225,000.

* The credit could only be used for homes selling for $800,000 or less.

* Contracts must be signed by April 30, 2010 and sales must close by June 30.

Mark Zandi, chief economist for Moody’s Economy.com (MCO), told me recently that he supports the extension because the housing market could take a big step back without it. But he agreed with critics that it is one of the most inefficient ways for the government to support housing.

According to Zandi, only 22% of about 1.8 million buyers who will claim the soon-to-expire credit would not have bought a home but for the incentive. Expanding the credit to include previous homeowners and extending the credit through June will cost about $30 billion, on top of about $8 billion that would have already been spent, he said.

The compromise bill outlined here might be cheaper because it seems to more narrowly define the existing homeowners who can take advantage of the credit.

10 ways to come up with down payment money for your next Huntsville Alabama Real Estate purchase!

1. Lotto tickets. Well, maybe not. If you’re truly lucky you might be able to buy a home and skip the mortgage. But odds are against it. Big time.
2. Tax refund. This is what usually gets the Spring market going. You’ve received your W2s by now, and refund checks will be in the mail shortly. Your refund might be just enough to get you into a home. 
3. Stocks, savings bonds. Do you have any savings bonds that are tucked away? Many people have stocks and bonds from gifts years ago. A good use for them might be to buy your first home,
4. Gift from a relative. Many programs allow the down payment to come from a gift from a relative. If you have a generous relative who is willing to help, this could be just what you need.
5. Cash out your 401k. If you have money in your company retirement plan, you can liquidate it and use it for your down payment. Because you didn’t pay taxes on it up front, you will have to pay taxes on the amount you liquidate as well as a penalty for withdrawing it early. This can still be a good option in some cases, but a better option might be -
6. Take out a loan against your 401k. The advantage here is that you are paying your self back and you still have your retirement account. Most plans will let you borrow up to half the value in your account, and the interest rate and terms are set so the payment (to yourself) will be affordable.
7. Sell something – If you’re like most people, you probably have more stuff than you know what to do with. Some of this stuff may have value, if you are willing to part with it. Do you have a boat or a motorcycle? How about baseball cards or other collectable’s? EBay makes it easy to convert stuff, to cash, and this could be just what it takes to get you into a home.
8. Down payment assistance programs.  Nehemiah and AmeriDream are two versions of these programs. These are non-profit groups that, in a sense, launder a credit you negotiate from the seller in a way that you can use it for your down payment. These are usually used in conjunction with an FHA loan. I’ll post more on these later. If you have questions on how they work, give me a call.
9. Government grant programs. There are programs like the Alabama Bond Program http://www.ahfa.com/ , which provide you with a grant at closing for the money you need for the down payment and closing costs. You need to meet the guidelines, but if you qualify it is often the best way to buy.
10. Look at the long range. Maybe you don’t have the cash to buy what you are looking for, but this might be the time to put yourself on a savings program so you will have it down the road. What can you do now to get extra cash?  Can you take on a second job? How about cutting your expenses? You might be surprised at how much you can save if you have a goal and a plan.

There are lots of ways to buy without having a lot of cash. Use your imagination and you can come up with some more ways to come up with the down payment.