A piece of legislation was signed on March 25th that should be a tremendous incentive for home buyers in California to take action, and soon! AB132 provides $200 million for home buyer tax credits, dividing the money equally between purchasers of new (previously unoccupied) homes, and first-time buyers of existing construction. Beginning with purchases closing escrow on or after May 1 until the end of 2010, eligible purchasers of a personal residence will be able to take a tax credit equal to the lesser of 5% of the purchase price or $10,000, in equal installments over three consecutive years. A requirement of the bill is that purchasers live in the home for at least two years, or else they forfeit the credit. Those rules will apply from January 1 through July 31, 2011 as well, if funds remain.
C.A.R., the California Association of REALTORS, reported that nearly 40% of first time buyers last years indicated that they would not have purchased a home had the federal tax credit for first-time buyers not been offered. That program is still in effect, and first-time buyers who manage to get into contract by the end of April could qualify for an $8,000 Federal Credit in addition to the new $10K credit from the state.
The previous California program was supposed to have continued into the first months of 2011. However, the popularity of that program was so great that all funds were used by June 2009. That program applied only to buyers of new-construction. Some analysts calculate that the new California program funds will only last for one month or so before first-time buyers of existing homes snap them all up. Time is of the essence!
How does a homebuyer qualify? The state's Franchise Tax Board (FTB) allocates the credits on a first-come, first-served basis. The homebuyer must submit a properly executed settlement statement to the FTB within two weeks of close of escrow, which can occur no sooner than May 1, 2010. In order to receive the tax credit, escrow must close no later than Dec. 31, 2010, unless a credit has been reserved prior to that date, in which case the home must close escrow before Aug. 1, 2011. For these purposes a "first-time buyer" is defined as any individual who did not have an ownership interest in a principal residence for the three years preceeding the close of escrow date of this qualifying purchase. Homebuyers can check to see more details by checking the Franchise tax board website. That is where they also will need to check once the program has begun to see if funds are remaining.
Between this new text credit, the possibility of still taking advantage of the Federal credit through April 30th, and the current low mortgage interest rates that have been bobbing upwards lately, one would hope there would be great incentive for buyers to be willing to compromise a bit on their list of requirements, in trade for some handsome financial advantages!