Home tax credit deadline looms

An $8,000 tax credit for qualified homebuyers has helped stimulate local real estate sales, but time is running out on the government’s offer.

Local real estate agents and mortgage lenders say they’ve seen increased sales in the area “consistent with first-time buying” that they believe can be directly associated with the tax credit.

Unfortunately, the credit only applies to home sales closed before Dec. 1, which means eligibility for the credit is about to end.

“The important thing to know is that it’s still available for any loan that closes by Nov. 30,” said Greg Slater, of Real Estate III.

“The other important thing is that we’re really coming down to the end of the line because most loans take about 30 days to close.”

Nationally, real-estate officials estimate home sales have soared by nearly 24 percent from the market’s lowest ebb in January.

Realtors across the country expressed worries that consumers will sit on the sidelines for fear of looming job losses or pay cuts and that the market’s momentum could falter if the credit isn’t extended.

The tax credit takes the place of a previous program providing a tax-free loan to first-time homebuyers. That program, which began in 2008, offered a $7,500 tax break in the form of an interest-free loan that had to be repaid over 15 years.

$8,000 back

Under the new plan, the homebuyer gets $8,000 back from the government after taxes are paid. If someone owed no tax, for example, the person would get an $8,000 tax refund, according to http://www.federalhousingtaxcredit.com.

“When I started looking for a home, I thought the 15-year loan was a great idea and by the time the process was completed, the loan turned into a credit,” said Tom Hebert, who recently bought a Louisa County home and qualified for the credit. “That was even better.”

Hebert plans to use the credit in combination with other funding to purchase investment property.

“The idea behind the credit was to help people use it for down payments on properties and to put it back into the economy,” he said. “That’s exactly how I plan on using it.”

Slater said his agency has seen a lot of first-time homebuyers in the market. He noted that recent studies show sales are up for homes priced under $250,000 and attached homes such as townhouses and condominiums. That price range and those types of homes typically attract new buyers.

“Anecdotally, we’ve seen a spike in activity within our organization that indicates it could be sparking some interest,” Slater said. “There are a lot of first-time homebuyers waiting to pull the trigger on a new home.”

The IRS defines a first-time homebuyer as a person or married couple that has not owned a “principal residence” during the past three years. The credit is a maximum of $8,000 or 10 percent of the home’s value, whichever is less.

There are income limits, however. A single homebuyer can make a maximum of $75,000 and a married couple can make no more than $150,000 on a joint tax return. Homebuyers must use their purchase as a principal residence for at least three years or they may have to repay the tax credit.

Homes that qualify include single-family and attached homes, mobile homes and even houseboats, according to the IRS.

Stimulating the market

Ray Caddell, of Century 21 Real Estate, specializes in finding homes for middle-class buyers. He said he’s seen several of his clients, including Hebert, use the credit.

“There is no question that it’s stimulated the under-$300,000 market for real estate,” Caddell said. “It’s like free money and it’s being used by buyers for down payments, at Lowe’s, for roofers and other items. It’s coming back into the economy.”

Although the tax credit has sparked first-time homebuyers, it hasn’t helped with higher-priced homes or those who may be trading up in the market, lenders note.

“For the overall economy, a more extended benefit would be a lot better. If the government’s goal was to stimulate the housing market, it doesn’t work,” said Matt Hodges, of Compass Home Loans. Hodges also serves as the president of Central Virginia Mortgage Professionals.

Caddell voiced similar concerns.

“It’s good for the first-time buyer, but what about the guy who sells the house to the first-time buyer? Is he then able to move up to another house? That’s not real clear right now,” Caddell said.

“The overall marketplace is somewhat ignoring it because the buyer who is moving up to another home cannot use it and the investor couldn’t use it,” Hodges said. “Usually, when a market is down, it’s the first-time buyers and the investors that are the ones who lead the economic recovery.”

Hodges noted that time is running out on the tax credit because homes must close before Dec. 1. He said loan underwriters are being extra-cautious to make sure that homebuyers meet qualifications, and that can cause delays in getting a loan approved and a sale finished.

“There are more restrictions on applications regarding debt ratios and they’re requiring many larger down payments on some products,” Hodges said. “It’s not all doom and gloom. There is more loan money available and more solvent loans are being made. There’s a lot of opportunity out there as home values are less than they were two years ago and you can get more house for less money. There are many rays of sunshine.”

Pressure to expand

Slater and Hodges say congressional pressure may lead to expanding and extending the tax credit. Several members of Congress have been calling for a continuation of the program.

“I think Realtors are letting Congress know at every level and are providing strong arguments for continuing the tax credit and that it should be expanded,” Slater said.

“As it gets closer to the expiration deadline, I’d be willing to bet that there’ll be a lot of calls for an extension and expansion,” Hodges said. “I think we’ll see something happen as it gets closer to the deadline.”