Additional Housing Tax Credits Are Proposed

Congress is mulling over new tax credits to lure homebuyers to get into the mix and purchase a home in today’s oversaturated housing market. The initial $7,500 tax credit was revamped into the $8,000 tax credit, and then changed again so you can use that as part of your down payment. Now even more changes are being discussed, which is more good news for those looking to buy a home.

Doubling the tax credit to $15,000

$7,500 wasn’t good enough, $8,000 isn’t doing it currently, so why not go to $15,000? Makes sense, but how about a sliding scale? $15,000 is not chump change, but in California its just a drop in the bucket when you are looking at the house prices in LA and San Francisco. I think it would make sense to modify the credit to be a percentage of the purchase price rather than arbitrarily increasing the total amount.

Expand the pool of eligible homebuyers

Currently there is a large loophole that as long as you haven’t purchased a home in the past 3 years, you are still considered a first time homebuyer. Lawmakers want to expand this even further to include “any buyer of any home”. I like this move, particularly in conjunction with an increase in the tax credit. This casts a much wider net and entices anyone to get back in the housing market.

Extend the timeline of the tax credit

The current deadline for the tax credit is the end of the year. There are various proposals to extend the deadline to at least the middle of 2010. This makes sense, as there is no reason to end the credit at the end of the year with most housing markets seeing a glut of home inventory and very few qualified borrowers.

$3,000 Refinance tax credit

This bill would give a similar tax credit to those who refinanced the mortgage on their primary residence. This additional $3,000 would be available to anyone who refinances. This credit doesn’t make as much sense to me on paper. Those people who have been able to refinance, are doing it to fix their mortgage rate, or potentially save money on their payments by refinancing. They have done this already, or will do this regardless of a $3,000 credit. Refinancing your home simple to benefit $3,000 on your taxes is not a wise choice. The refinance makes sense or it doesn’t, a $3,000 tax credit shouldn’t affect that decision for most borrowers. This type of credit could bring back some of the shady loan practices that were prevalent during the housing boom.

Overall, anything that will encourage prospective homebuyers to get into the market will be beneficial. Increasing the tax credit won’t hurt, expanding the amount of eligible homebuyers won’t hurt, and extending the deadline won’t hurt. The question remains, will all of these things put together finally get the housing market back on track?