Congress expands homebuyer tax credit

• Chris Kissell
• On 6:00 am EST, Friday November 6, 2009

Homebuyers are receiving an early holiday gift from Congress.

This week, the Senate and House passed an unemployment relief bill that also extends the federal homebuyer tax credit into 2010 and expands the pool of eligibility beyond first-time buyers.

"Any program expansion can be considered a good thing for those seeking a primary residence," says Cameron Findlay, chief economist at LendingTree in Charlotte, N.C.

Now, it's up to President Barack Obama to sign the measure into law. The White House has said it favors an extension. Extending and expanding the credit will likely shape the type of home purchases that occur over the next few months, according to Findlay.

"Sales activity itself may not see a large increase," he says. "But we expect the mix of the sales to shift towards (the) primary residence owner."

Bill details

The new legislation extends the existing $8,000 first-time homebuyer credit beyond its scheduled Nov. 30 expiration date and into the spring. A $6,500 credit also will be offered to existing homeowners who sell their current property and purchase a primary residence that costs $800,000 or less. To be eligible for the tax break, homebuyers would have to be under contract by April 30, 2010, with closings wrapped up no later than 60 days after that.

Income limits for the credit would increase to $125,000 for individuals and $225,000 for couples. Homebuyers who qualify must stay in their new homes for at least three years or they will have to repay the credit.

The legislation excludes investor-owned properties from eligibility, a move that appears to keep the program focused on "promoting long-term community price stabilization," Findlay says.

Act soon

Buyers are the most obvious beneficiaries of the expanded credit. But sellers also could get a boost, especially if they live in states stung by dramatic property value declines. David Kuiper, a mortgage planner at First Place Bank in Holland, Mich., says homeowners who fear selling at a loss might be persuaded to do so anyway if they know they'll get money back in the form of a tax credit after buying a new home.

"It would help with the equity loss in the home they sell," he says.

Jim Sahnger, mortgage consultant for Palm Beach Financial Network in Stuart, Fla., says the credit could help reimburse other costs associated with selling a property, including "updating, minor renovations (or) recapture of closing costs."

However, the credit's impact also could cut in negative ways. As the spring expiration date draws nearer, sellers might use the credit as leverage against buyers who are "under the gun to get a deal done," Sahnger says.

"The closer we are to the deadline, the more sellers may be apt to hold firm on pricing," Sahnger says, noting that such a pattern emerged in recent weeks as the original Nov. 30 deadline loomed.

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