Mortgage Insights Blog

President Obama on Tuesday signed the American Recovery and Reinvestment Act of 2009 into law. Among its many provisions, the bill resets the conforming loan limit cap at $729,750, up from $625,500. The bill also increases the first-time home buyer credit from $7,500 to $8,000, and removes the requirement that the credit be paid back if the buyer stays in the home for at least three years.

Here are the major points of the bill focused on the housing market:

1. 2008 $729,750 High Balance Conforming& FHA Loan Limits Restored in High Cost Areas.

The bill reinstates last year's 2008 loan limits for FHA, Freddie Mac, and Fannie Mae loans. These limits were equal to the greater of 125% of the 2008 local area median home price or $271,050 for FHA and $417,000 for Fannie and Freddie, with an overall maximum cap of $729,750. For the few areas where the 2009 limits were higher, the higher limits will apply. In addition, the bill includes language providing the HUD Secretary with the discretion, if warranted, to increase the loan limit for any "sub-area", i.e.an area smaller than a county. The Secretary's discretion is again limited by the $729,750 cap. These 2009 limits will expire December 31, 2009.

This makes higher cost homes more affordable - especially in the coastal housing markets that tend to have higher than average home values.

How soon can you expect to see changes? Now it’s just going to be a waiting game to see how long the GSE will take to implement the higher loan limits and any additional risk based pricing.

2. Expansion of First-time Home Buyer Tax Credit.

The tax credit available to first-time home buyers was increased from $7,500 to $8,000 for homes purchased between January 1, 2009, and December 1, 2009. Also, the credit no longer needs to be paid back as long as the buyers live in the home without selling it for at least 3 years. The previous version of the credit expired on July 1, 2009, and required home buyers to pay the funds back over a 15 year time frame.

The income limitations remain the same ($75,000 for single tax payers claiming the full credit and $150,000 for married tax payers), as do most other qualification requirements. Also, the credit remains refundable. “This means that first-time home buyers who owe less than $8,000 in taxes for the year are still eligible for the full $8,000 credit when they file their tax returns, and the IRS will write them a check for the difference between $8,000 and their actual tax bill. In fact, the credit can be claimed on your 2008 tax returns that you file by April 15 of this year, even if you buy the home in 2009.

There is one catch, however: if you bought the home in 2008, the credit remains $7,500, and it still needs to be paid back over a 15 year timeframe beginning in 2011 when you file your 2010 returns.

3. Higher Reverse Mortgage Loan Limits.

The loan limits for FHA-insured reverse mortgages have been increased to $625,500 across the entire country-not just the higher cost areas. The previous limit was $417,000 across the country.

This is especially important because the FHA program is virtually the only game in town as private and jumbo reverse mortgage programs have nearly all evaporated. This coincides with another little-known change in the reverse mortgage arena: the availability of reverse mortgages on home purchase transactions.

This is a fantastic opportunity for senior citizens to buy a new home and live mortgage payment-free without having to wait for their old home to sel. Seniors could also use this strategy to buy a new home and turn the old home into a rental or otherwise wait for market conditions to improve before trying to sell the old home.

4. Expansion of Home Improvement Tax Credit

To promote green jobs and energy independence, ARRA invests significantly in efforts to make homes and buildings more energy efficient. Through 2010, homeowners will be able to claim a 30% tax credit (up from 10%) for purchases of new furnaces, windows and insulation up to a maximum of $1500. This means that if the improvements cost you $4,500, you would receive a tax refund of $1,500 when you file your tax returns.

Eligible improvements include energy efficient exterior doors and windows, insulation, heat pumps, furnaces, central air conditioners and water heaters.

Generally, most modern improvements like windows, furnaces, and air conditioners meet the necessary standards for energy efficiency. If you’ve been holding off on making some of these improvements, now is a great time to get a move on it - especially with all the great deals being offered.

5. Broadband Deployment

The bill creates $7.2 billion in grants to promote broadband deployment in unserved and underserved areas and for mapping the availability of broadband service in the U.S. Any entity is eligible to apply for a grant including municipalities, public/private partnerships and private companies as long as they comply with the grant conditions. The grants are subject to "network neutrality" requirements to ensure that broadband networks be free of restrictions on content, sites, or platforms, on the kinds of equipment that may be attached, and on the modes of communication allowed. The bill also charges the FCC is with developing a national broadband plan that shall seek to ensure that all Americans have access to broadband capability and shall establish benchmarks for meeting that goal.