mortgage

4 ways stimulus helps homeowner, buyer

Other incentives

In addition to the first-time homebuyer tax credit, the stimulus legislation includes three more measures that could have a positive impact on homeowners, homebuyers and home sellers.

Expansion of the home improvement tax credit. The tax credit for making energy-efficient home improvements has been raised to 30 percent of the cost of the improvements, up to a maximum of $1,500.

Eligible improvements -- which must meet the standards established by the federal government -- include replacing doors and windows, adding insulation, and installing new heating and air conditioning systems and water heaters.

"The tax credit on home improvements works as a great incentive for homeowners who need to make energy-efficient improvements to their homes," Smith says.

The fact that these incentives are "credits" rather than "deductions" makes them even more appealing, Smith says.

"It is well worth taking advantage of a tax credit (as opposed to a deduction), since you get 100 percent back on your taxes from a credit," he says. "In this case, the homeowners will also have the benefit of reduced utility bills in future years."

Dooley agrees the home-improvement tax credit could motivate some homeowners to make energy efficiency improvements. But he also cautions that people who fear unemployment are less likely to take advantage of the incentive.

"The theory is great, but people need to be able to pay for these improvements upfront," says Dooley.

Higher FHA reverse mortgage loan limits. Loan limits for reverse mortgages insured by the Federal Housing Administration have been increased to $625,500 across the country.

"The loan limits for reverse mortgages have been too low for some time, so this increase could have a big impact," Nicholas says.

The previous limit was $417,000 across the country, which meant that in markets where homes are more costly -- such as the San Francisco area, New York City and its suburbs, and Washington, D.C. -- FHA-insured reverse mortgages were not available for many homes.

Many private reverse-mortgage programs have disappeared, making FHA loans "virtually the only game in town," Nicholas says.

Nicholas says the higher FHA reverse-mortgage limits are especially important in light of the "HECM for Purchase" program passed into law as part of 2008 federal stimulus legislation.

The program -- which took effect Jan. 1 -- allows older homeowners to use the proceeds from a reverse mortgage to purchase a new principal residence. To qualify for a new purchase reverse mortgage, buyers need to be seniors over age 62 and presently own a home.

"Senior citizens who want to move have been stuck in this market, but now they can take a reverse mortgage on a new purchase and pay it off when their existing home sells," Nicholas says. "They don't have to wait until their current home sells to move."

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Nicholas thinks the changes to reverse mortgage rules, which took effect Jan. 1, could improve markets in places popular with retirees, such as Florida and Arizona.

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