States Doing Their Part to Rally Housing Demand, Fix Economy
Recognizing the damaging impact of the housing downturn on revenues and their economies, a growing number of state governments have been taking steps to provide incentives for home buyers. Included among these are programs that enable first-time purchasers to monetize the $8,000 tax credit enacted as part of February’s massive economic stimulus package and use it as a downpayment.
The National Council of State Housing Agencies (NCSHA) has recently established an information clearinghouse on tax credit monetization programs for consumers and other state agencies. To read up-to-date information on these programs, click here.
NAHB’s Web site — www.federalhousingtaxcredit.com — remains the leading source of detailed information on the first-time buyer tax credit, and it is now available in both English and Spanish. The site had 1.5 million visitors in February and March, and it continues to receive brisk traffic.
Recent surveys have found that the tax credit is a significant incentive for prospective first-time home buyers, but it has yet to reach its full potential because a large share of the marketplace still does not know enough about it. (For related survey stories in the March 30 issue of NBN, click here and click here.)
The federal tax credit is available to those who close on a first home this year before Dec. 1.
According to information posted on the NCSHA site:
- In Colorado, those who qualify for the credit can receive a second mortgage loan equal to 3.5% of the purchase price, or $6,000, whichever is less. Borrowers are charged 0% interest on the loan from the date they close on their home until June 30, 2010. If not paid in full by that time, the interest rate increases to 8% with a 10-year repayment term. An administrative fee of $350 is charged the borrower at closing, but $250 of this amount is refunded if the loan is repaid by the June 30 date.
- The Idaho Housing and Finance Association, through its IdaMortgage lending program, is offering a special short-term tax credit second loan to qualified buyers. The loan is being offered at up to $7,000, with the expectation that it will be paid off from the borrower’s tax refund. To qualify, first time buyers must have at least a 640 FICO score and a total debt-to-income ratio of no more than 45%.
- First-timers using the New Jersey Housing and Mortgage Finance Agency's home buyer program can receive a loan to pay downpayment and closing costs with a second mortgage not exceeding $5,000 (or $4,000 in the case of married filing separately). The loan amount cannot be more than the tax credit cash the borrower reasonably expects to receive from the Internal Revenue Service. The borrower pledges to apply the refund received from the first-time home buyer tax credit toward the repayment of the loan.
- In Missouri, the Missouri Housing Development Commission (MHDC) can provide a second mortgage at the time of closing worth up to 6% of the home purchase price, or a maximum of $6,750, to be used to cover downpayment and closing costs. The tax credit advance loan is paired with MHDC financing for a 30-year, fixed first mortgage. The repayment and fee terms follow an approach similar to those in the Colorado program.
- The Ohio Housing Finance Agency has initiated its Homebuyer Tax Credit Advantage program for those participating in its first-time home buyer program. The loan can be used for downpayment and closing costs, and can be for an amount up to 3% of the purchase price. Repayments and fees are similar in approach to those in other states, and borrowers must have a minimum 600 credit score.
On March 27, a major coalition of Florida consumers, lenders, Realtors® and builders announced that they were aggressively pushing state leaders to find a solution to enable first-time buyers in the state to use the $8,000 federal tax credit for a downpayment.
Spearheaded by the Consumer Federation of the Southeast (CFSE), a nonprofit consumer advocacy group, the coalition met on April 1 with Gov. Charlie Crist to discuss the urgent need for providing a strategy to enable the tax credit to be monetized. The coalition included the Florida Home Builders Association (FHBA).
“Housing is one of the top two economic engines for Florida,” said Doug Buck, FHBA’s governmental affairs director. “A revitalized housing market can lead us out of the recession, and more access to downpayment assistance money for first-time buyers would at the same time make Florida’s communities stronger.”
An estimated 8,000 to 12,000 prospective first-time home buyers in Florida could benefit if the federal tax-credit stimulus provision were accessed on the front-end to help consumers with downpayment and closing costs, according to the CFSE.
State Tax Credits Bring Browsers and Sales
Home buyers are also receiving assistance from states that are providing their own tax credits.
As of March 25, the State of California Franchise Tax Board reported, more than 1,700 applications totaling about $16.6 million were received for the state’s then three-week-old $10,000 tax credit.
The California credit is available to any qualified buyer who from March 1, 2009 and before March 1, 2010 purchases a principal residence that has never been occupied. The buyer must reside in the new home for a minimum of two years immediately following the purchase date.
The California Building Industry Association (CBIA) expected updates last week to show that a full 20% of the $100 million allocated for the credit had already been spoken for. If applications continue at the current rate, the credit will be depleted this summer.
According to an April 2 story in the Sacramento Bee, the association is talking with lawmakers about adding to the tax credit pool.
“The tax credit is having its desired effect,” Tim Coyle, CBIA’s senior vice president for governmental affairs, told the newspaper, noting that the incentive has helped spur more browsing and sales at subdivisions across the state.
As it now stands, the credit is expected to benefit about 10,000 home buyers, providing up to a $3,333 reduction in state taxes for each of the first three years after the home is purchased.
On March 12, Utah created a grant program to provide as much as $6,000 in funding to any qualified home buyer who purchases a newly constructed single-family home.
As of April 3, the Utah Housing Corporation indicated that 1,460 of the approximately 1,600 grants that will be created by the program were available.
The office of Utah Governor Jon Huntsman estimates that the state has 3,000 unsold newly built homes available and that 18,000 construction workers lost their jobs in the state last year.