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Published: November 6, 2009 3:00 a.m.

House expands tax credit for homebuyers

Stephen Ohlemacher
Associated Press
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Rent option offered in lieu of foreclosure

Fannie Mae is going to give borrowers at risk of foreclosure the option of renting their homes for a year.

The “Deed for Lease” program announced Thursday will allow homeowners to transfer title to Fannie Mae and sign a one-year lease, with potential month-to-month extensions after that. It helps save money because the lender does not need to complete the often lengthy and time-consuming foreclosure process. It also does less harm to the borrower’s credit record.

Fannie Mae executives said the rental program is designed to help delinquent homeowners who don’t qualify for a loan modification, but still want to stay in their homes.

To qualify, homeowners have to live in the home as the primary residence and prove that they can afford the market rent, which will be established by the management company running the program. Rents are based on current market rates.

WASHINGTON – Missed out on Cash for Clunkers? Congress has another deal for you: Buy a home before May 1 and collect up to $6,500 from the government. If you’re a first-time homebuyer, get up to $8,000.

As part of the government’s efforts to encourage people to spend money to help revive the economy, the House voted 403-12 Thursday to expand a popular tax credit for homebuyers. The bill, which also extends unemployment benefits and expands a tax break for money-losing businesses, now goes to President Obama, who plans to sign it today.

First-time homebuyers have been getting tax credits of up to $8,000 since January as part of the economic stimulus package. But with that housing program scheduled to expire at the end of November, the House voted to extend it into the spring – and to expand it to many people who already own homes.

Buyers who have owned their current homes at least five years would be eligible, subject to income limits, for tax credits of up to $6,500. First-time homebuyers – or people who haven’t owned homes in the previous three years – could get up to $8,000. To qualify, buyers have to sign purchase agreements before May 1 and close before July 1.

The credit is available for the purchase of principal homes costing $800,000 or less. The credit would be phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.

Real estate agents say the tax credit that’s already in effect has boosted sales, much in the same way the Cash for Clunkers program increased auto sales last summer.

The agents hope the expanded housing credit will help stabilize housing markets during typically slow sales months in the winter. Today, many prospective buyers are still worried that home values could drop further, said Lawrence Yun, chief economist at the National Association of Realtors.

About 1.4 million first-time homebuyers had qualified for the credit through August. The Realtors estimate that 350,000 of those buyers would not have purchased homes without the credit.