August 9, 2008: There's more to the mortgage relief bill than just mortgage relief
Having trouble making your mortgage payments? You might be able to make a change in your loan, thanks to the mortgage relief bill President Bush recently signed into law. Under the bill, you can convert your high-interest adjustable-rate loan to a lower-interest fixed-rate note if you meet what might, in a declining market, seem to be Catch-22-like guidelines: Your payment must be more than 31% of your income, and your new loan cannot exceed 90% of your home's value. Help is available -- provided you don't need it.
Starting October 1st, seller-paid down-payment assistance grants will be outlawed for FHA loans. This is bad news for lower-priced neighborhoods in Metropolitan Phoenix, where as many as nine out of ten homes are being sold with down-payment assistance. Expect to see a flurry of this activity in the next two months.
But the left hand gives where the right hand takes away: Buyers who have not owned a home for three years can take a $7,500 "refundable" tax-credit if they buy between April 9, 2008 and July 1, 2009. The credit is to be repaid over the next 15 years.
Perhaps the biggest change introduced by the bill is a revision of the capital gains exclusion rules. Since 1997, sellers have been able to deduct up to $250,000 of the capital gain on the primary residence from their tax burden -- up to $500,000 for married couples -- if they lived in the home for at least 24 months out of the preceding 60. Under the new law, the deduction will be pro-rated over those 60 months. If you live in the home for the full five years, you will take the full deduction. If you live there for three years out of the five, you'll deduct only 60%.
In the long run, this will slow down the level of residence-churning seen among monied home-owners. In the short run, expect a lot of pricey homes to sell between now and January 1st, when the old exclusion goes away.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
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