Passage of the American Recovery and Reinvestment Act of 2009 is a step in the right direction to help the housing market begin the recovery process. Now, it’s up to potential homebuyers to take that first step too. The $8,000 tax credit couldn’t come at a better time. Late winter and spring are the prime seasons for sellers and buyers who want a change of location, a new school district, to down-size or move on up.

However, time is of the essence. Details of the plan are:

• First-time homebuyers will receive an $8,000 tax credit, or 10 percent of the home’s value, whichever is less. First-time homebuyers are defined as those who have not owned a principle home during the past three years.
• The credit can be applied to either 2008 or 2009 tax returns and does not need to be repaid if the homebuyer lives in the house for a minimum of three years.
• The tax credit applies to first-time buyers who purchase a principle home between January 1, 2009 and December 1, 2009.
• Claiming the tax credit is easy. Once the sale is completed, new first-time buyers can claim the tax credit on their returns. No special forms or documents are required.
• Income restrictions do apply for the tax credit. Single homebuyers must make less than $75,000 and couples less than $150,000.

Mortgage Reduction Component Is Part of the Solution

While the $8,000 tax credit is an incentive to excite new buyers about home ownership and reduce inventory, the Homeowner Affordability and Stability Plan takes aim at reducing foreclosures and reducing mortgage payments. Between seven and nine million homeowners could see relief under this plan to partially stem the tide of even more housing stock going into foreclosure.

One feature of the plan focuses on responsible homeowners who continue to pay on their mortgages but at rates higher that the current rates. Because of lack of equity, these homeowners have been unable to refinance at a lower rate. Under this plan, qualified homeowners in good standing will be eligible to reduce their monthly rate, and free up the balance of the payment for potential spending.

For those at risk of losing their homes, a second feature of this plan aims to provide incentives for those entities in the housing industry, such as lenders, mortgage holders and borrowers to provide more affordable conditions for responsible homeowners in these circumstances.

This federal assistance is another step in reaffirming a robust society, and to begin the long road back to responsibility and a sense of hopefulness.