Federal Stimulus for New Homewoners

Alyssa Lehocky

Pol 233

September 9, 2009

The New Homeowners Stimulus Plan

As a result of the American Reinvestment and Recovery Act of 2009, the government is encouraging the sales of homes for new homeowners.  Of the $787 billion, $8 billion of the package will go to the New Homeowners portion of the law.[1]  All first time home buyers will receive an $8,000 tax credit.[2] Home foreclosures are on the rise and the stimulus is trying to prevent this from happening any further.  Refinancing mortgages are going to be available so they will be considerably more affordable.  Currently there are people paying more for their mortgages than the actual value of their homes, since housing prices have been declining.  At a time when the housing industry was collapsing, something had to be done, and it had to be fast.  There are many circumstances to the law that are required for this tax cut.  The purpose for the Home Owners Stimulus is to make housing affordable once again and also to allow more mortgage backed securities to families.  Many new and current homeowners are now available to options that make affording a house more accessible than ever in this current drought of economic activity.

When the Homeowner’s Stimulus came into effect on March 4th of this year, President Obama gave some reassuring words to help some 7 to 9 million families from financial ruin.  To the new homeowners, which qualifies them as not owning a house in the past three years, affording a house is encouraged and affordable.  As mentioned earlier, there will be a tax credit of $8,000, if purchased before December 1st, 2009.  This number is calculated as ten percent of the home’s current value, up to $8,000. It fell just short of the original $15,000 proposed. If the house is sold within three years, then the money must be returned.  The tax credit reduces the home buyer’s tax liability, meaning that if the buyer’s liability is less than $8,000, the remaining credit will be issued as a check.  Home purchases must be the primary residence.  If you are single and make $75,000 or more, or are married and make $150,000 or more, you do not qualify for the tax credit. The credit is not eligible if the seller is a relative of the buyer.[3]As a result, there are almost 320,000 new homeowners who took advantage of the First-Time Homebuyers Tax Credit, which is giving life back to the market as we once knew.

Another concern or request would be speculation as to if the Homebuyer credit will be extended.  The National Association of Home Builders and other industry groups have long argued that the credit isn't large enough to help reinvigorate the housing sector.  The Business Roundtable is calling on Congress to increase the credit to $15,000 and extend it to all home buyers.[4]  There has been no word on whether or not this is going into action yet, but it could still be possible. 

Current homeowners, however, have also been suffering for quite some time.  Since the mortgage rates and the value of the house are inversely related, with the mortgage rates being sky high, it is estimated that about four to five million homeowners will be allowed to refinance their mortgages. A $75 billion program will be established to subsidize loan modifications for participating lenders to help many homeowners facing foreclosure.[5]  Obama says that this will not save every home, however, it will give millions of families reside to financial ruin a chance to rebuild.  It will prevent the worst consequences of this crisis from wrecking even greater havoc on the economy.  By bringing down the foreclosure rate, it will help to shore up housing rates for everybody.  There is a highest estimated $6,000 for average resulting increase in housing value.  There is also $1.5 billion in assistance for renters displaced by foreclosure.  The law gives Fannie Mae and Freddie Mac a $50 billion increase in allowable mortgage-backed securities.  These institutions guarantee home loans for millions of middle class families are generally not permitted to guarantee refinancing for mortgages valued at more than 80% of the homes worth.[6]  This has changed by removing this restriction and is now guaranteed.  While Fannie Mae and Freddie Mac will be receiving fewer payments, this will be balanced out by a reduction in foreclosures and defaults.  The borrowers will now receive secure more affordable terms.

There is also some easier ways to save your money, such as the energy tax incentive, which has been extended through 2010.   Homeowners can recoup up to thirty percent of the cost of installing energy saving features in their home. The credit is valid on up to $1,500 of improvements.  Over $4 billion was allocated for the Home Energy Credit.  Some examples of improvements include: Energy Efficient windows and doors, air conditioning, furnaces, and water heaters.  This means that if the improvements cost you $4,500, you would receive a tax refund of $1,500 when you file your tax returns.

The Homeowner stimulus plan is a great start to bringing the economy back up to par.  It has already shown new improvements with the large number of new homeowners.  This has helped homeowners stabilize their finances and also prevent many foreclosures from happening.  It is motivated new homeowners to reconsider purchasing a home to call their own.  



 



[4] http://online.wsj.com/article/SB124460195604101021.html