The tax credit is actually equal to 10 percent of the home’s purchase price up to a maximum credit of $8,000.
First-time homebuyers are eligible for the credit if they have not owned a principal residence for three years prior to the purchase. The credit phases out between $75,000 and $95,000 for singles and $150,000 to $170,000 for married couples filing jointly.
The tax credit does not have to be repaid as long as the home is the homebuyer’s main home for 36 months after the purchase date.
Unfortunately, many prospective purchasers of new homes are incurring difficulties in securing and closing on the purchase.
“Local and national commercial and savings banks are trying their best to aid the purchaser to close on the new home. Nevertheless, due to rules and regulations imposed by federal and state authorities, closings are taking much longer than expected,” said Vincent Riso, a principal at the Briarwood Organization.
Strict underwriting rules are creating havoc for first-time and established buyers. Due to the credit crisis, lenders have risen the levels of underwriting requirements and are denying mortgages to prospective buyers with weak credit scores and low down payments.
For example, many condominium closings have been held up since government service organizations will not provide financing unless at least 50 percent of the units have been sold and closed.
A few years ago, a closing would take place three to four weeks after a contract of purchase was signed; today it can take three or four months. A three- or four-month process would make it impossible for many qualified buyers to benefit from the laws.
Two of the biggest housing trade groups, the National Association of Realtors and the National Association of Home Builders, are lobbying to extend the credit and even expand it.
According to the Pending Home Sales Index report issued by the NAR, contract activity for pending home sales has risen for six straight months, a pattern not seen in the eight-year history of the index. The report estimated that 1.8 million to 2 million first-time buyers will take advantage of the $8,000 first-time homebuyer tax credit.
Existing home sales rose 7.2 percent to a seasonally adjusted annual rate of 5.24 million in July, the most since August 2007 and the fourth straight month the figure increased, according to the NAR. One in three home sales last month came from first-time buyers who are benefiting from the tax credit.
Sens. Johnny Isakson and Christopher Dodd are sponsoring a bill that would raise the credit amount to a maximum of $15,000. The NAR is lobbying to extend the credit and broaden it to cover all new purchases in 2010.
Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.