The Bailout: Federal Homeowner Assistance Programs

With talk of new home buying programs offered by the federal government stirring the real estate market, it is important to understand which programs are available and how to take advantage of each one.

Much of the funds of recently passed stimulus packages have been set aside for those who are interested in purchasing a home, or for those who currently own a home and are in need of tax breaks or federal incentives. For such, there are several programs and funds put in to place that can be of aid.

Reverse Mortgage Cost Incentives

For seniors looking to participate in the advantages of a reverse mortgage, the typical costs and fees associated with doing so has been a turn-off for many. However, the new federal housing bill limits these fees to 2 percent of the first $200,000 value of the home and 1 percent of the value over $200,000 with a maximum cost of $6,000.

In addition to the cost limits, legislation has recently raised the maximum home value in which owners have the option to take advantage of a reverse mortgage. In the past, the maximum home value could be no more than $362,790 or even less depending on where the home was located. This prevented owners of higher valued homes to enter in to a reverse mortgage.

Modifications to the reverse mortgage maximum home value have raised this limit to $625,500, allowing more citizens the ability to get the most out of the equity they have in their home.

Help For Preventable Foreclosures

Another aspect of the $700 billion bailout under congressional review has to do with avoiding what they call "preventable foreclosures".

If passed, the federal government would set aside $50 billion in order to have the ability to modify troubled loans, or to buy the loan from the banks themselves which will allow them to adjust the loan on their own terms. Although the details have not been ironed out and the bill is still under review, if passed, it is expected to help many homeowners who simply took out loans that created a mortgage payment that was out of their means. Having their loan modified would allow those who wish to stay in their homes to do so.

The federal government would guarantee loans readjusted for homeowners who could prove their annual income is worth 38 percent of the debt on their home. Not only would loans be taken over by the government, but the existing lenders would be strongly encouraged to lengthen loan terms or to make other necessary adjustments in order to lower borrower's monthly payments to assist them in keeping their homes.

Property Tax Deduction

Individual homeowners who choose the standard deduction when filing their taxes may deduct up to $500 in property taxes per year with up to $1,000 in property tax deductions available for married couples filing jointly. The amount deducted for property taxes may not exceed the actual amount paid for that particular year. The 2008 standard deduction for single taxpayers is $5,950 and for married couples the standard deduction is set at $11,900.

First-time Homebuyer Tax Credit

Tax credits and incentives for those looking to purchase a home are now available. For starters, interest rates are at a record low of about 5% for well qualified buyers. The average sales price of a single-family residential home has also dropped significantly from the level seen just a few years ago, with the trend expected to continue throughout the year.

Those looking to purchase their first home before July 2009 are eligible for either a $7,500 tax credit, or a tax credit of 10% of the home; whichever is less. This tax credit is refundable, even if your tax bill is less than the minimum $7,500. First-time home buyers who may owe the IRS $1,500 when filing their taxes would still receive a $6,000 refund, being the difference of the $7,500 tax credit. This tax credit is available for all single taxpayers with a total adjusted gross income of less than $75,000 to $95,000, depending on circumstances, and for married couples whose yearly income is less than $150,000 to $170,000.

With every offer come stipulations. In particular, this tax credit acts more or less as an interest free loan because those who elect to take advantage of the credit must ultimately pay the total amount back to the IRS. Beginning in the second year after the home purchase, an additional $500 per year in taxes must be paid for 15 consecutive years to pay off the total amount of the tax credit. The option to sell the home is still available; however, upon sale of the home the full balance must be paid in full with the exception of those who sell their home at a loss.