Dean Graziosi

It seemed a reasonable solution to an unexpected problem. The most recent homebuyer tax credit required buyers to go to contract no later than April 30^th, 2010.  Buyers also had to close on their new purchases no later than June 30^th 2010.  It all seemed simple enough.

The substantial tax credits, which could be taken in cash and which many purchasers expected to use to offset closing costs, could be collected in several ways.  However, many purchasers were rightfully cautious about the government’s reliability and included contingency clauses in their purchase and sale agreements regarding the satisfactory completion of the tax credit.

Due to legislative reforms that have caused lenders and appraisers to be more accountable, closing dates can no longer be expected to meet a 60-day closing date. Today’s closings take between 75 and 90 days if all goes well.  When there are complications such as improvements required by lenders, closing dates can be even further delayed.

The National Association of Realtors (NAR), the nation’s largest trade organization, threw its considerable weight behind a legislative action to extend the June 30^th closing deadline to September 30^th for homebuyers to retain the original tax credit.

The motion seemed like a reasonable solution to an unexpected problem.  The closing date amendment was added to a tax extender bill presented by Democrats.  In Washington today, the political infighting is characterized by the Senate’s inability to pass the extender bill.

As incredible as it seems, the Senate proposal has been denied.  As a result almost 200,000 sales may not take place.  Most of the purchase contracts included contingencies that if the tax credit was not included in the transaction, the sale was nullified.

Congress’s inability to extend the June 30^th deadline may very well result in 180,000 homes being returned to the already over-flooded marketplace.  Once again, Congress has failed the American public and the American taxpayer.  The homebuyer tax credit was a well-intended incentive program designed to stimulate the real estate market.  Now, it has backfired and will doubtless cause further stress to the housing market. Once again, Congress has failed the taxpayers who elected them.

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The 2009 First Time Homebuyer Tax Credit is scheduled to expire on November 30^th 2009.  Only transactions that close on or before the cutoff date may qualify for the tax credit, which does carry certain income standards.  Currently, the FHA requires a minimum down payment of 3.5% for its financing alternatives. 

As of May, 2009, the U.S. Department of Housing and Urban Development (HUD) announced changes to the agency’s original position and began allowing first time homebuyers to use the tax credit as part or all of the purchaser’s down payment.  This change opened up an entirely new sector of homebuyers and has sparked increased real estate sales activity.  Currently first time buyers are scurrying to beat the fast-approaching November 30^th deadline.

Originally there were eleven states that accepted the HUD revisions.  For use as part of the down payment, the 2009 tax credit can be used as a subordinate loan until such time as the credit is actually received, when it must be applied to the down payment advance.  Qualified homebuyers can use up to $7,000 of the tax credit as part of the down payment as long as it does not exceed 5% of the purchase price.  A $250.00 fee is assessed for this use.  $150.00 is refundable upon repayment of the loan on or before the due date.

The due date of the advance is July 1, 2010.  The loan accrues interest at a rate of 3%.  The loan must be repaid from the borrower’s tax refund. 

The National Association of Realtors was instrumental in assisting Congress with formulating the 2009 Tax Credit, which unlike its predecessor does not require repayment.  The NAR has requested a further expansion of the 2010 credit and recommended that the new bill not be limited to first time homebuyers.  Congress has not responded to this request.

Earlier this summer, Congress was considering a $15,000 tax credit with some limiting income considerations.  As of now, the Obama Administration has not offered support for the increased initiative.

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