TAX NEWS - June 2010

Eligible homebuyers will get federal tax credit

Tax credits likely to be extended, experts say

Fox Valley mortgage lenders are confident Congress won't let thousands of homebuyers miss out on a lucrative tax credit worth as much as $8,000.

It's estimated thousands of pending home sales may be in jeopardy unless lawmakers extend the June 30 deadline for buyers to close on their deals and claim tax credits worth up to $6,500 for repeat buyers and up to $8,000 for first-time buyers.

U.S. Senate last Wednesday approved a three-month extension, giving buyers until Sept. 30 to close, but it's attached to another bill that still has to be passed by the House. The extension would apply only to buyers who met the April 30 deadline to have signed purchase contracts in hand.

U.S. Rep. Steve Kagen, D-Appleton, supports extending the deadline, said Allison Jaslow, Kagen's spokeswoman. He signed a letter of support for H.R. 4213, the proposed American Jobs and Closing Tax Loopholes Act, which includes an amendment for extending the homebuyer tax credit deadline.

As of Sunday, no date was scheduled for a vote on the legislation.

Jim Zimanek, a residential mortgage loan officer for Associated Bank in Appleton, can't see a reason why Congress would not approve an extension.

"It's revenue neutral and it won't cost the government any more money," Zimanek said. "I don't really see a downside to extending the deadline. … It does allow buyers more time to close on their transactions if they can't meet the June 30 deadline."

Jamey Milheiser, vice president of sales at Hartford Financial Services in Grand Chute, also believes an extension is likely.

"The lobby is strong enough to convince Congress to step in and extend the deadline for those people who are counting on the tax credit," he said.

Across the country, many pending deals are in danger of not closing by June 30 because of delays that aren't the buyers' fault, industry experts say. Some appraisals are taking longer to complete, and some lenders have been overwhelmed by a crush of mortgage applications that landed before the tax credit expired April 30.

Zimanek said certain transactions, including deals involving foreclosed properties, also take longer to process than traditional sales.

"Some lenders also may be facing a volume issues, which is why they just need more time to get everything done," he said.

Up to 180,000 buyers who were hoping to close by June 30 and get the tax credit are likely to miss the deadline, according to the National Association of Realtors (NAR).

"We are hopeful," says Paul Bishop, vice president of research with NAR. "We've heard a lot of concern from Realtors out there. There seems to be a sense of fairness. The tax credit was essentially promised" to those buyers.

Tens of thousands of homebuyers claimed the tax credit.

The Internal Revenue Service reports that for tax returns processed through Feb. 20, 1,795,429 taxpayers claimed the homebuyer tax credits for homes purchased in 2008 and 2009. The claims total $12.7 billion in tax credits.

In Wisconsin, 30,984 claims were filed by taxpayers through the same period, totaling $216,977,794 in tax credits.

While many people took advantage of the tax credits, Zimanek thinks low mortgage interest rates and plentiful inventory will keep the home buying market active.

The going interest rate for a 30-year fixed mortgage now is 4.75 percent, Zimanek said. A couple of months ago, the same mortgage was going for 5.125 percent.

He said on a $120,000 loan, a monthly payment, which would include principal and interest at 5.125 percent, would be about $654. At 4.75 percent, the monthly payment falls to $626.

"The mortgage market is even more attractive today than it was before the tax credit deadline," he said. "If someone were to buy a home today, in the long run, your savings (on interest over the life of loan) would be about $9,871."