FHA News : Let’s Talk about the HERA Tax Credit

Written By: Stacey Sprain

The recent passage of the Housing and Economic Recovery Act brought forth big buzz in regards to the $7500 tax credit that will be provided to homebuyers. Let’s review this subject in a bit more detail since January 31 is just around the corner!

First, in order to claim and receive the tax credit, the filer(s) must be first-time homebuyers and they must close on the purchase of the home between April 9, 2008 and July 1, 2009. The actual tax credit will equal 10 percent of the purchase price for a maximum amount of $7500. If the return is filed for married persons, each spouse will receive up to $3750 credit.

A first-time homebuyer is defined as a person who has not had ownership in real property as a primary residence for the previous three-year period prior to settlement on the purchase. For a married couple, both histories are taken into consideration. If either borrower owns or has owned a second home, vacation home or investment property in the prior three years, they are still eligible as long as they did not own a primary residence.

Sounds like a great deal, right? Sounds like a great incentive to stimulate our crumbling housing market and keep realtors employed? Well yes if you or your borrower qualifies to receive it!

First off, the credit isn’t just free money. It’s actually an interest-free loan that is repayable over the following 15 years. So for a credit totaling $7500, you would need to deduct $500 from each of your tax return filings for the following 15 years.

Second, if the homebuyers purchase the home using any home loan program connected with state-revenue bond funding, they are not eligible to receive the tax credit whatsoever. With the cease of seller-funded downpayment assistance programs, many borrowers are purchasing homes utilizing special state-specific programs that offer grant funding for downpayment assistance and closing cost credits.

Third, if the single borrower’s gross adjusted income exceeds $75000 or joint borrowers’ gross adjusted income exceeds $150,000 total, the amount of tax credit starts to phase out and the amount lowers. For single borrowers whose gross adjusted income exceeds $95000 and joint borrowers whose gross adjusted income exceeds $170,000, the tax credit eligibility no longer applies.

A few other notes of importance:

• A borrower who constructs a home on land he/she already owns is eligible for the credit as long as he/she has not owned any other real property as a primary residence in the prior three year period. The borrower must take occupancy of the newly constructed property between April 9, 2008 and up until July 1, 2009.

• Single family detached, attached, condominiums, manufactured homes and houseboats qualify

• There is no special claim form or application process. The tax credit is something the qualifying party will be able to claim within their federal tax return when they file in 2008 or 2009.

• For purchasers in the District of Columbia, only one tax credit may be claimed for first-time homebuyers. They may not claim the existing DC credit in addition to the HERA tax credit.

• Permanent and non-resident aliens are eligible in addition to U.S. Citizens as long as they meet the definitions explained in IRS Publication 519.

So for realtors and originators, it’s important to know and understand the various provisions associated with the HERA tax credit. For those buyers who meet the eligibility criteria, this tax credit could be a great benefit.


About The Author

Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.



Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.