HOUSING
HOUSING BILL MAY HELP YOU
The proposed housing bill has some form of financial relief for nearly every homeowner, not just those whose homes are close to foreclosure.
Posted on Sun, Jul. 27, 2008
By RON LIEBER
New York Times Service
If you are ignoring the housing bailout bill because you think it benefits only troubled homeowners, you may miss out on a windfall.
The Senate cleared the last hurdle Friday to passing the bill aimed at sparing hundreds of thousands of homeowners from foreclosure and bolstering troubled mortgage giants Fannie Mae and Freddie Mac with a 80-13 test vote, and the legislation is expected to be signed soon by President Bush.
Not only does it offer incentives to certain overextended borrowers and their mortgage lenders, but it also includes many handouts to first-time home buyers, longtime homeowners, returning veterans and senior citizens seeking to tap their home equity without getting hit with big fees. Millions of people have the potential to benefit somehow.
Here are some of the new benefits:
RENEGOTIATING
Part of the bill is devoted to the creation of a program that may allow some people to cancel their old mortgage loans and replace them with new fixed-rate loans lasting at least 30 years. The amount of the new loans would be no more than 90 percent of what their property is actually worth now.
So who is eligible? You need to have originated your troubled loan or loans on or before Jan. 1, 2008. The loans in question must be on your primary residence. You will also need to verify your income.
Also, as of March 1, 2008, your monthly housing payment (including the principal on all your various mortgage payments, interest, taxes and insurance) has to have been at least 31 percent of your monthly household income.
Lenders, however, are not required to give you a better deal under the new law, even if you do meet the qualifications. They may not be willing to negotiate unless they think you are truly on the cusp of foreclosure.
If you manage to get a new loan, you cannot take out a home equity loan for at least five years after you get the new mortgage. You will also have to pay a 1.5 percent fee each year on the remaining balance. Finally, you have to hand over no less than 50 percent of any appreciation on the home to the government once you sell. Sell the house in less than five years, and you will have to turn over as much as all of the gain.
This program ends on Sept. 30, 2011. While it does not take effect until Oct. 1, lenders may be willing to start negotiations now.
FIRST-TIME BUYERS
If you are buying a home for the first time, and it is your primary residence, you are eligible for a federal tax credit of $7,500 or 10 percent of the purchase price, whichever is smaller. With a tax credit, you subtract the credit amount from the total you would otherwise pay to the IRS. So if you owe $1,500, you would end up getting a $6,000 refund.
If you earn a modified adjusted gross income of more than $75,000, or $150,000 if you are married and filing jointly, the credit starts to phase out. For single people, it phases out completely at $95,000 of annual income, while for married people filing jointly, it phases out at $170,000.
You have to pay back the credit over the next 15 years.
The tax credit is retroactive to home purchases on April 9, 2008, and expires on July 1, 2009. If you purchase a home between Jan. 1, 2009 and June 30, 2009, you can claim the tax credit on your 2008 tax return.
DEDUCTIONS
If you are a homeowner who takes the standard deduction on your federal income taxes and does not itemize, this one is for you. You can now take an additional federal tax deduction of $500, or $1,000 if you are married and filing your tax returns jointly. You get it in addition to the standard deduction.
Since itemizers are often people who pay a lot of mortgage interest, this deduction will benefit people who pay little or none. You will need to report the property taxes you paid on your tax form. If they are less than $500 (or $1,000 if you are married and filing a joint return), your deduction will be limited to the amount of the property tax you paid.
MORTGAGE AID
Reverse mortgages allow older Americans, generally 62 and older, to get a lump sum or a monthly check that comes out of their home equity. They do not have to pay the money back until they stop living there permanently or their heirs sell the house.
The problem with these loans, however, is that they often come with high fees. Moreover, some salespeople pressure borrowers who are applying for the loan to purchase annuities, long-term care insurance or other financial products that are not necessarily in the borrower's best interest.
The bill limits origination fees on reverse mortgages at 2 percent of any loan up to $200,000 and 1 percent beyond that, up to a maximum of $6,000.
The bill also states explicitly that borrowers cannot be forced to purchase an annuity or other financial or insurance product,
The bill raises the maximum amount that people can borrow to $625,500.
JUMBO LOANS
With the new bill, Fannie and Freddie have permanent authority to buy bigger loans in areas with high housing costs. They can buy loans up to 115 percent of the local median home price, though they cannot buy any loans larger than $625,500. Any larger loan will generally be a jumbo loan, which will cost more in interest.
BREAK FOR VETERANS
Lenders will have to wait nine months, instead of 90 days, before beginning foreclosure proceedings on homes owned by returning soldiers. Lenders must also wait a year before raising interest rates on a mortgage held by someone returning from military service.
These provisions expire on Dec. 31, 2010.
The Associated Press contributed to this report.
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