A very good summary of HR 3221
The Media can be misleading.
Yeah I know, no surprise there!
But let's talk about HR 3221, H.R. 3221 or if you want to call it by it's really long name, the Housing and Economic Recovery Act of 2008
It was signed into law Monday July 28th, 2008. It was reported all over the world. it's the talk of the town. I've been interviewed on radio shows, quoted in articles and blogs. Ok, now what?
Just about nothing. We're waiting.
There's quite a few facets included in the bill that still need to be hashed out. Here's a quick peek at just some of the facts.
The $7,500 Tax Credit
It's a tax credit (not a rebate). It's for purchases made between April 9, 2008 and July 1, 2009. It's essentially an interest free loan for 5 years that has to be paid back.
Down Payment Assistance Programs
HR 3221 wipes out the ability for down payment assistance on an FHA loan starting October 1, 2008. Think you have till then? Think again. The Lenders are already not allowing DPA on the loans they are accepting.
Skin in the game
FHA used to finance up to 97%. That meant that the buyer had to pony up the other 3%. As of October 1st, under the new rules, the borrower will have to 3.5%.
Reserve Requirements for Second Homes
Thinking about buying a second home? Vacation home? How about Rental Property. It's a great time to find bargains. How much liquid reserves do you have in the bank? There wasn't a minimum reserve requirement before. Now there is.
Have less than 30 % equity in the second home? You'll need to prove you also have 6 months worth of PITI reserves for both properties in the bank (liquid). Yeah I said SIX months! Have more than 30%? You'll just need to prove you have two months reserves.
Capital Gains Exclusion
Are you good at percentages? Remember when you were entitled to $250,000/$500,000 of tax-free gains from the sale of a home if filing separately/jointly provided you lived in the residence for at least 2 of the preceding 5 calendar years? Not any more.
Now that exclusion is calculated by taking the capital gains on the sale of the home and multiplying it by a ratio (percentage) of how long you lived in the home and how long you owned the home.
Loan Limits Increased!
Nope. Matter of fact, depending on where you live, FHA, Fannie and Freddie Conforming Jumbo loans will decrease.
The Mandatory Refinance at 90% of Present Value
I saved the best for last. First of all it's not mandatory. It's actually voluntary on the lenders part. Should a lender decide this is in their best interest, they'll still hold the note. They'll reduce the size of that note to 90% of the present value and that's what FHA will be on the hook for. Then again, nothing here is in concrete. The details still have to be hammered out by HUD. Until that happens, nothing really has changed.
So there you go. You know know more about HR 3221 than the next guy at the water cooler.
What should you do if you think any of these changes will involve you in the future? Contact your trusted mortgage professional today.