2009 American Recovery and Reinvestment Act

There are currently three major components to the 2009 Stimulus Plan that pertain to homebuyers.  Scroll down for more information.

$8000 First Time Home Buyer Tax Credit

Right now is one of the best times for a first-time homeowner to buy a home and an important part of this is the $8,000 tax credit.  The homebuyer tax credit is one of 10 key provisions of the American Recovery and Reinvestment Act signed by President Obama into law on Feb. 17, 2009. 

Here's a summary of the program:

  • The law provides for an $8,000 tax credit for home purchases on or after January 1, 2009 and on or before December 1, 2009.
  • The tax credit is available to first-time homebuyers or those who have not had any ownership interest in at least three years.
  • Any home above $80,000 qualifies for the full $8,000.  Homebuyers will be credited 10% of the purchase price for amounts less than $80,000.
  • The monetary benefit comes in the form of a tax credit, a reduction in the income taxes owed by the homebuyer.  If there are not any taxes due, the full amount will be refunded. 
  • To claim your credit you must close on a house within the time frame and file either a 2008 tax return, an amended 2008 return or wait until you file your 2009 return next year.
  • The program does have income restrictions.  Single filers are phased out if their adjusted gross income on their 1040 is above $75,000.  The limit is $150,000 for joint filers.
  • There is no application and no pre-approval needed.  All that needs to be done is to file the new form 5405 as an attachment to your tax return.
  • In order to keep the entire credit the homebuyer must not sell the house within three years.  There are some hardship exceptions for this provision. For more details click here


    Home Affordable Refinance

The refinance provision of the 2009 Stimulus plan includes a provision for homeowners who are current on their loans but unable to take advantage of today's low interest rates.  Due to the tightening of credit, many homeowners cannot qualify for a new conventional refinance because they do not have the required  20% equity in their home.  The refinance program allows homeowners with less then 20% equity in their homes to qualify for today's outstanding market interest rates. 

The program has the following requirements:

  • You own and currently occupy at one to four-unit home.
  • Your mortgage is held by Fannie Mae or Freddie Mac. To check click here.  
  • The amount you owe currently cannot exceed 105% of the current value.
  • You must have stable income sufficient enough to support the new mortgage payments.
  • If you would like to participate you can call the lender of your choice - you do not need to work with your current loan company and there are no "approved providers", so don't get scammed.

The refinance initiative is not designed for:

  • Homeowners who are delinquent on their mortgage payments.
  • Homeowners who owe more than 105% of their homes current value.
  • People who want to get cash back from their refinance. For more information go to www.MakingHomeAffordable.gov


    Loan Modification

The recently enacted homeowner stimulus package includes a provision for loan modification.  The Making Home Affordable program is designed to facilitate the modification of the existing loans of homeowners who are in financial distress.  In order to be eligible for a modification you must:

  • Be an owner occupant.
  • Have an unpaid principle balance of $729,750 or less for single unit properties.
  • Have a loan which was originated on or before January, 1, 2009.
  • Have a mortgage payment (including taxes, insurance and HOA dues) that is more than 31% of your gross (pre-tax) monthly income, and
  • Have a mortgage payment that is not affordable.

The program is available to homeowners who are either current or behind on their mortgages and make payments to a participating servicer (mortgage company). 

If you are approved for the program your payment will be reduced to a level where the total payment is no higher than 31% of your gross income.  You will first be put on a three month trial modification at the new interest rate and payment amount.  If payments are made successfully throughout the trial period your servicer will put execute a permanent modification agreement that will lower your interest rate to a fixed rate for five years, and then capped at a low rate for the remaining life of the loan. 

The U.S. Treasury is providing incentives to mortgage companies to lower interest rates down to as low as 2%.

For full details on the program go to www.MakingHomeAffordable.gov