States and the U.S. Department of Housing and Urban Development (HUD) are working together to stretch stimulus dollars.
On May 11, 2009, Georgia governor Sonny Perdue signed a bill that allows state taxpayers to take up to $1,800 in credit for a single-family home purchased in the next six months. With the bill's signing, Georgia became the latest of several states passing or proposing legislation designed to augment the $8,000 first-time home buyer tax credit currently allowed under the federal American Recovery and Reinvestment Act (ARRA). Other such states include California (which began in March filing $10,000 credits for the purchase of new homes) and Utah (which allows up to $6,000 for new homes).
The legislation shows the work of home building associations, which have been citing the continued rise of unsold homes in many states as a reason for elected officials to bolster the federal package with additional tax incentives. Builders in states that have passed such bills are now aggressively promoting the combined credits, hoping to move wary consumers into the housing market.
The U.S. Housing and Urban Development (HUD) also took a step recently to increase the impact of its $8,000 credit. On May 12, 2009, HUD decided to allow qualifying consumers to use their first-time home buyer credit to help cover the down payment and closing costs of FHA-insured mortgages.
"We, like you, believe that this new tax credit is not only a tremendous opportunity for first-time home buyers, but also an enormous benefit for communities struggling to deal with an oversupply of housing," said HUD Secretary Shaun Donovan, speaking at the National Association of Realtors Real Estate Summit in Washington. "So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities, to monetize the tax credit through short-term bridge loans. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit."
Although the details of the program are still being fleshed out, it's evident that HUD is interested in allowing first-time buyers to stretch their stimulus dollars by using the credit at settlement, instead of when they file their tax returns. That's good news for builders, since the down payment is the biggest obstacle for home buyers. With this program in place, consumers can use the "monetized" tax credit as a mini-mortgage, repaid when the tax refund arrives.
Housing industry leaders and builders cheered the news. "Secretary Donovan shares our view on the need for a housing and economic recovery," said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla. "We appreciate his leadership in moving swiftly to help first-time home buyers to access the tax credit upfront at the time of closing. The timing could not have been better as we are in the midst of the crucial spring home-buying season."
To read the full transcript of Donovan's speech, click here