Two Programs to Fix the Housing Crisis That Make Sense
The housing bubble, which peaked in late 2007 and popped in 2008, has caused problems for millions of homeowners. With foreclosures reaching into the millions the US government has been desperately trying to ease the downward spiral.
Thus far several programs have been put into place, but not all have been successful. Below we feature two, one that has been working throughout 2009 in the manor it was intended and another on the drawing board which is just starting to pick up popular support. With such a heavy excess of homes currently available though a lot of work still needs to be done.
1. $8,000 First Time Home Buyer Tax Credit
The $8,000 first time home buyer tax credit is a fantastic incentive for any first time home buyers or anyone who has not purchased a home in the last three years. To qualify those filing single must have a modified adjusted gross income (MAGI) of $75,000 or less and married couples filing jointly must have a MAGI of $150,000 or less. The tax credit is good from January 1st, 2009 – December 1st, 2009.
The best part about the credit is that it is not a 0% interest loan but an actual full $8,000 credit from the government even if you paid nothing for your most recent taxes. The tax credit is a great incentive for new home ownership. For more information visit http://www.federalhousingtaxcredit.com.
With only months left before the program is set to expire there is already discussion about extending the program into 2010, increasing it’s redeemable value, and even making it eligible for anyone and not just first time home buyers.
2. Rent – To – Own
Renting to own has been around forever, but in the case of the housing crisis applying this concept to aid homeowners could be an effective solution for keeping residents in their original homes while also giving them a chance to buy back the house at a later date.
In today’s Tech Ticker Dan Alpert of Westwood proposed a version of rent-to-own that works like such:
- The homeowner is given an option to give his or her house to the bank in exchange for a 5-year lease (at market rates) on the property. The homeowner must be able to decide singlehandedly to pursue this “deed for lease swap”, or the banks won’t agree to it.
- The bank takes over ownership of the house and rents it back to the homeowner for the lease term, at which point the homeowner has the option to buy the house back at fair market value.
The idea has recently gotten backing and publicity from a Senator and could be on its way to becoming a reality. The biggest problem to overcome though with this concept is dealing with the banks themselves. In their eyes they would have take the losses on the home at that moment and write them off which in turns effects their balance sheets. This is something all banks are very motivated to not do.
The other issue would be valuing the rental prices on the homes and managing payments, house upkeep, etc. Furthermore, if you assume the owner couldn’t afford the mortgage to begin with, would 10 – 20% savings by paying as a renter really make a difference?
While the $8,000 first time home buyer tax credit has already been in use for the first of 2009 and a success at motivating home ownership, the second program, although promising, still faces a lot of questions.
Other Great Posts:
- 10 Thing Your Real Estate Broker Won’t Tell You
- Dumbest Business Moves Thus Far 2009
- 7 Great Questions to Ask When Choosing a Financial Adviser
- 3 Ways to Fix Your Retirement Account
- 10 Best Iphone Applications for Finance and Investing
Source:
Another Plan To Fix The Housing Market: Rent-To-Own
Henry Blodget
Yahoo Finance Tech Ticker, July 17th, 2009
