Homebuyer tax credit could help local sales

The federal government is tweaking an $8,000 tax credit for first-time homebuyers in a way that some in the Charlottesville area’s housing industry believe will stimulate local home sales.
The refundable tax credit was included in the $787 billion federal economic stimulus package signed into law earlier this year. It essentially allows qualified new homebuyers to receive up to $8,000 when they file their taxes, so long as they purchased a home between Jan. 1 and Dec. 1 of this year.

Yet in an attempt to sweeten the deal even more for first-time buyers, the U.S. Department of Housing and Urban Development is preparing to roll out a change that would let the homebuyer receive the tax credit cash at the time of closing. The switch aims to allow first-time homebuyers to put the money toward a down payment or closing costs.
A HUD spokesman said the “monetized” tax credit will be launched shortly. HUD Secretary Shaun Donovan announced his agency’s intentions at a National Association of Realtors meeting in Washington on May 12.

Although details have yet to be confirmed, some Charlottesville-area real estate agents, mortgage brokers and others are excited about the news.
“The change would be incredibly positive,” said Greg Slater, a real estate agent and president-elect of the Charlottesville Area Association of Realtors. “It would probably stimulate more purchasing.”
While the region’s overall real estate market has slowed, sales have picked up on the lower end of the market typically favored by first-time buyers.
During the first four months of 2009, Slater said, 366 homes in Albemarle County went under contract. Of these, the number of contracts on homes priced below $300,000 increased by 26 percent over the same time period a year earlier. Meanwhile, contracts on houses priced above $300,000 fell by 32 percent.
“The first-time homebuyer is taking advantage of these low interest rates and this tax credit,” Slater said. “They’re using it and it’s working.”
If the tax credit is amended, Slater added, he expects that even more first-time buyers would tap into the incentive. First-time buyers often lack the savings to cover costs such as a down payment. With the ability to claim up to $8,000 at the time of closing, such expenses become less of an obstacle.
Tracey McFarlane, an agent with Real Estate III who works primarily in the Zion Crossroads area, said the modified tax credit could offer certain buyers more bargaining power. Homes that are in good shape and priced below $200,000 are increasingly seeing multiple bids from prospective buyers, she said. With access to $8,000 at the time of closing, she said, a buyer could make a more attractive offer by picking up the closing costs.

McFarlane has one client, she said, who is a single mom with a steady job and excellent credit. She qualifies for a home priced at $140,000, but the properties they have found at that price point have been foreclosures and in need of repairs. If she had the tax credit cash at the time of closing, McFarlane said, she could use the money to improve the property and make it livable.
“In my opinion, it would make a huge difference in jumpstarting our housing market,” McFarlane said.
Dan MacDougall of Allied Home Mortgage Capital Corp. said he and other Federal Housing Administration-approved brokers and lenders received a letter from HUD outlining the planned changes to the tax credit. The letter, he said, suggests that HUD will allow a nonprofit agency — such as the Piedmont Housing Alliance — to provide first-time buyers with a “short-term loan” based upon the anticipated tax credit. The buyer would make no payments on the loan until they receive their tax refund the following year.

“It would be an incredible opportunity,” he said.
MacDougall said that between 40 percent and 60 percent of home purchases are financed via FHA-backed loans that require a down payment of 3.5 percent. By allowing buyers to receive up to $8,000 up front, he said, it would be much easier to afford the down payment costs.
“A lot of people just don’t have that sort of money,” he said. “This would help.”