This is my column for this week from the Arizona Republic (permanent link).
There’s more to the mortgage relief bill than just mortgage relief
Having trouble making your mortgage payments? You might be able to make a change in your loan, thanks to the mortgage relief bill President Bush recently signed into law. Under the bill, you can convert your high-interest adjustable-rate loan to a lower-interest fixed-rate note if you meet what might, in a declining market, seem to be Catch-22-like guidelines: Your payment must be more than 31% of your income, and your new loan cannot exceed 90% of your home’s value. Help is available — provided you don’t need it.
Starting October 1st, seller-paid down-payment assistance grants will be outlawed for FHA loans. This is bad news for lower-priced neighborhoods in Metropolitan Phoenix, where as many as nine out of ten homes are being sold with down-payment assistance. Expect to see a flurry of this activity in the next two months.
But the left hand gives where the right hand takes away: Buyers who have not owned a home for three years can take a $7,500 “refundable” tax-credit if they buy between April 9, 2008 and July 1, 2009. The credit is to be repaid over the next 15 years.
Perhaps the biggest change introduced by the bill is a revision of the capital gains exclusion rules. Since 1997, sellers have been able to deduct up to $250,000 of the capital gain on the primary residence from their tax burden — up to $500,000 for married couples — if they lived in the home for at least 24 months out of the preceding 60. Under the new law, the deduction will be pro-rated over those 60 months. If you live in the home for the full five years, you will take the full deduction. If you live there for three years out of the five, you’ll deduct only 60%.
In the long run, this will slow down the level of residence-churning seen among monied home-owners. In the short run, expect a lot of pricey homes to sell between now and January 1st, when the old exclusion goes away.
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lease purchase with option to buy says:
“Your payment must be more than 31% of your income, and your new loan cannot exceed 90% of your home’s value”
exactly how far out of touch is the government?! I need a refi on my townhouse property that i bought with a 5% equity built in. the problem is that the property dropped 15% the next year (last year) and is now 10% under water. how the *$@# am i supposed to pony up a 10% down on a property that sank with the rest of the market?
pointless. thanks for the info though! and keep up the informative posts!
–korr
August 11, 2008 — 3:35 pm
Upstart Agent says:
It will be interesting if anyone can actually benefit from the relief or not – I do think the capital gain deduction changes might play a small role in how long some people stay in their homes. Will just have to wait and see!
August 11, 2008 — 6:31 pm
HIP says:
Sounds an nteresting concept – here in the UK our government is looking at similar measures which hopefully will be soon anounced
August 22, 2008 — 2:41 am