How the Housing Tax Credit Proves Good, Bad News

RISMEDIA, August 25, 2008-(MCT)-The housing recovery law enacted late last month included good news in the temporary $7,500 tax credit for first-time home buyers, but it also leveled a “double whammy” for some markets, a mortgage consultant said.

That’s from the buyer’s side. On the seller’s side in the meantime, houses priced right still sell quickly, a Realtor said.

For current homeowners, while the new law directs almost $300 billion to a new federal program that could help troubled homeowners refinance their mortgages into more sustainable loans, that program comes with restrictions that could bar many in trouble from using it, as well as costs to both lenders and homeowners that could drive them away from it.

Mixed news for buyers

“These programs could be used not just by first-time home buyers, but by anyone who needed assistance and are very popular and useful programs. I estimate that this program helps 20 percent of all first-time home buyers in our market,” said Scott Senner of First Commercial Bank in Oklahoma City.

The bad news? Certain down-payment assistance programs will no longer be available after Oct. 1.

The double-whammy?

The law also raises the mandatory down payment on Federal Housing Administration-backed loans from 3 percent to 3.5 percent.

In most markets, Senner says. However, in “Oklahoma City home prices are averaging somewhere around $145,000, which means that a borrower will need to come up with $5,000 (plus closing costs) to buy a home. For a first-time home buyer, that is a lot of money. As a matter of fact, for most people that is a lot of money,” Senner says.

Good news for sellers

“If you price your house just a little bit below market value, it’ll sell quickly,” said Mitchell, a sales associate with Real Estate 2000 in Oklahoma City.

But, she said, many sellers, perhaps remembering the heady days of multiple offers and bidding wars during the 2002-2005 housing boom, won’t budge, or budge far, from their first asking price.

Even some people facing foreclosure hold onto the hope that they can get top price for their home-enough to pay off their loan, real estate agent fees and everything else-until too late and they tumble into foreclosure and lose their home, Mitchell said.

Some lose more than they realize, especially young people who were first-time buyers a few years ago and who are now seeing that what follows a housing boom isn’t pretty, even if it’s not a bust.

“They think, ‘Hey, I’ll just get a foreclosure and be able to go and get my credit straightened out and buy another house,” she said.

Maybe, but not anytime soon.

“They don’t realize,” she said, that a foreclosure is about as bad as a bankruptcy, taking seven to 10 years to clear from one’s credit record.

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