National Association of REALTORS® Government Affairs Division
Here are some of the most frequently asked questions on the changes to the Homebuyer Tax Credit
Question: Existing homeowner credit: Must the new house cost more than the old house?
Answer: No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6500 credit.
Question: I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. If President Obama has signed the bill by the time I go to settlement, will I qualify for the new $6500 tax credit?
Answer: Yes. The existing homeowner credit goes into effect for purchases after the date of enactment (when the bill is signed). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement.
Question: I am a firsttimehomebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits. If the new rules have been signed into law by the time I go to settlement, will I be eligible for a credit?
Answer: Yes. The new income limitations go into effect as soon as the President has signed the bill. The income limit and other eligibility rules will look to your status as of the date of purchase, which is the settlement date. So if the new rules have been signed when you go to settlement, you should be eligible for the credit (or a portion of the credit if you’re within the phaseout
range).
Question: I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a nonnegotiable price of $825,000. Will I be able to use any of the $6500 tax credit?
Answer: No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.
Question: I owned my home for 10 years, but sold it two years ago year and have been renting since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility tests?
Answer: Yes. Because you lived in the home for more than 5 consecutive years of the previous 8, you will qualify for the $6500 credit. For example, Say John and his wife bought a home in 2000 and lived there until 2008 when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for 5 consecutive years out of the last 8 years. The keyword here is “consecutive.” As long as he lived in that house for 5 years straight what he did since 3 years doesn’t impact eligibility.
Question: I am an eligible firsttime homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?
Answer: You do not have to close before December 1. Once the legislation has been signed, it will be as if the Nov 30 date had never existed. Therefore, so long as the contract settles before April 30 (or July 1, worst case), the purchaser will be eligible for the credit.
Kendyl Young
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As a realtor, I get why you are a believer in this tax credit – but the reality is that this a very poorly targeted stimulus that does nothing to address the core problems. Approximately 1.9 million buyers are expected to receive the credit, but more than 85 percent of these would have bought a home without the credit. At best you may have simply accelerated the purchase. At worst, most of the new home sales just result in moving renters to owners, which does not absorb the excess supply of houses. The core of our weak housing market is that the housing bubble led to too many homes being built, and the recession has led to a decline in household formation. By moving renters into owners, the tax credit does not address either of these causes.
We still have to “pay the piper” for our nearly decade of real estate excess and prices in areas like LA are still very out of alignment with household incomes (don’t be distracted by the “good news” in the recent median sales figures – less than 25% of households in the Santa Monica zip have incomes that can support those current median prices). These efforts, along with all of the foreclosure “initiatives”, are simply giving money away and delaying/deferring a neccessary, even robust correction in the marketplace (we will see a massive correction in the upper ($700k plus) range that will again place pressure on the low end of the market – it is just a matter of time).
where is my credit if i bought a house in June 2009 and owned one for 5 years prior to this
Dan- thank you for taking the time to comment. I don’t understand, however, why it is a bad thing to convert renters to home owners. You say this does not help absorb excess housing. What are you looking for- an influx of rich foreigners to come any buy our homes? Converting renters to buyers frees up lower cost rental units, providing much need housing for those who still can not buy. California is still gaining population and, while there might be excess housing in outlying areas, we are seeing a real lack of housing inventory in the urban areas.
From my point of view, the weak housing market has more to do with loans that reset with higher payments & job losses. These two factors led to troubled sales which led to lower prices. Excess housing, at least in Glendale, is not a factor.
Clay- I am sorry, but I don’t think you qualify for the existing home owner credit. You must close escrow between the day Obama signed the bill (November 6, 2009) and April 30,2010.