Eligible taxpayers who close escrow on qualified principal residences between May 1, 2010 and December 31, 2010 will be able to take the allowed tax credit.

This credit is equal to the lesser of 5 percent of the purchase price, or $10,000 taken in equal installments over three consecutive years.  Under the bill, purchasers will be required to live in the home as their principal residence for at least two years or forfeit the credit (i.e., repay it to the state). Buyers also must be at least 18 years old and not be related to the seller.  First-time buyers are defined as those who have not owned a home in the past three years.

This state credit is good news for buyers living along the coast in San Diego’s North County and are looking to buy a home in Cardiff, Encinitas, Carlsbad, Vista, San Marcos, or Oceanside. It will be a supplement to the Federal tax credit for first-time buyers where the buyer must be in escrow by April 30, 2010.

Here are three reasons why you might regret it if you’re not under contract by April 30th:

1. You won’t receive a home buyer tax credit.  The financial incentive offered by the Federal government for the past two years is set to expire soon.  If you’re not under contract to purchase a property by April 30th, you will not collect the $8000 if you are a first-time buyer, or the $6500 if you are a repeat buyer.
2. You won’t lock in on historically low interest rates.  Because the Federal Reserve has taken many measures, including purchasing mortgage-backed securities, interest rates have remained historically low for several years. Since the economy is beginning to show signs of recovery, the government may soon put an end to these stimulus efforts. If that happens, many economists believe we will begin to see a sharp increase in interest rates which could result ina much higher monthly payment for those who wait.
3. You might miss out on record home price affordability. Home price affordability is at itsw most optimal level in decades.  As a result, those who wait to buy will likely pay more for the home they purchase than what that same home would cost right now.

“There is no time to waste for anyone who wants to take advantage of this great buying opportunity, ” added Weichert.

1. Low Interest Rates May Not Last:  The rate on a 30-year mortgage averaged 5% last week. Rates are low in part because the Federal Reserve has been buying up about $3 trillion in mortgage-backed securities and mortgage agency debt. Their goal is to hold down interest rates and keep mortgage money available. But the Fed is slowly pulling back and has no plans to buy any more securities after March 30, 2010. And the recoverinig economy itself should raise interest rates as the year goes on. Economists at the Mortgage Bankers Association predict a 6.1% interest rate by the end of the year.
2. Expiration of Home Buyers Tax Credit on April 30th:  At this point, no one knows if Congress will renew this tax credit for the second time. To qualify for the credit, you must sign a purchase contract by April 30, 2010 and close by July 1, 2010. First-time buyers (those who haven’t owned a home in 3 years) get $8000, and move-up buyers get up to $6500.
3. Home Prices May Be Rising:  There are indications that home prices are near a bottom in some areas and may actually be rising a bit.  Conditions vary by neighborhood, and data is tricky to interpret, but potential home buyers should keep an eye on what’s happening with home prices.

If you’re a home buyer on the fence, think carefully about these three factors, and perhaps you’ll get off the fence and go looking for that new home!

According to the survey, 34% of homeowners said they would use the tax credit to pay off debts, followed closely by home improvements (29%) and making investments (28%).

In addition, Coldwell Banker found that 20% of homeowners indicated they were more likelyto consider purchasing a home than they were six months ago, after learning about the federal tax credit.

The National Association of Realtors recently reported that 47% of 2009 home sales were to first-time buyers, so clearly the initial tax credit worked. This survey offers positive indicators that there are more existing homeowners considering a home purchase today  than there were six months ago.

Rates are so low right now because since early January of 2009, the Federal Reserve has been purchasing mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. In September, 2009, the Federal Reserve said it would wind down this purchase program by March 20, 2010. In a recently published mortgage survey, loan experts predicted that rates will increase in the next 30-45 days. For comparison, at this time last year, 30-year fixed rate mortgages were at 5.53%.

Regardless of the survey, the general consensus is that interest rates are super low right now, and they may be the lowest the market will see for a long time. Remember also that these very low rates are offered to the most credit-worthy consumers who can make a sizable (usually at least 20%) down payment.

So should you buy now? It all depends on your personal situation. Homebuyers have a lot of factors in their favor right now — low interest rates, plenty of competitively-priced homes for sale, and an extended and expanded federal tax credit that will expire in the spring.

On the flip side, there is some sentiment that housing prices may fall further. Lenders are expected to get more specific at determining which buyers will qualify for loan modifications. If they don’t agree to a loan modification, lenders will move homes more quickly through the foreclosure process. And home values may depreciate in response.

So it’s your choice. Take advantage of all of the factors in your favor as a homebuyer right now, or wait for prices to fall further. Either way, the first six months of 2010 should be a great time to buy!

Yun feels there is pent up demand of first-time buyers for homes, both new and resale. While prices should rise, it is also likely that mortgage interest rates will also rise slightly to around 5.7% from the current 5.2%.

Other experts, such as Patrick Nugent of IHS Global Insight, Michael Lea of the real estate center at SDSU, and James Hamilton at UCSD, are not as sure that prices will recover next year, although there is a consensus that we are near the bottom.

This is an excellent time to consider buying, with low interest rates, low prices likely to rise in the future, and the federal first-time home buyer tax  credit.

The current homebuyer tax credit is scheduled to expire on November 30th. This new bill would extend it until April 30th of 2010. First-time buyers who are in the process of making a purchase will still qualify for the $8000 tax credit even if they close after the November 30th deadline.

The expanded tax credit will allow more people to qualify for the credit. Move-up buyers do not have to sell their current homes to qualify, but the money must be used to buy a primary residence, not a vacation home.

The new legislation included provisions to address complaints of fraud. The IRS is given greater authority to oversee the the process to root out fraud, and provisions are added in response to past abuses of false sales or underage buyers.

The new legislation should continue to fire up the housing market and continue to bring new buyers into this fast-paced market.

Stevenson said that the main pitfall of the proposal is that it only pushes back the expiration of the tax credit to the end of April. He is skeptical that the extension will drive homebuyer activity over the slow winter months. He does agree that Congress could come back and extend it again.

Jerry Howard, President of the National Association of Home Builders, offers a different view. He believes that “failure to act now could derail the fragile housing recovery even before it has time to take root…the consequences would be devastating for both housing and the economy.” Homebuilder stocks were up sharply in the wake of the news of the Senate comprom,ise.

The compromise on extending the tax credit doesn’t mean it’s a sure thing, and the proposal still faces a vote in Congress. One potential snag is a recent government report that uncovered fraud and abuse associated with the tax credit. Thousands of ineligible taxpayers may have received millions of dollars under the program, according to the report.

There is also hope that Congress may extend the $8000 First Time Home Buyer Tax Credit beyond its current November 30 expiration date. This credit has encouraged first time home purchases and has contributed to the strengthening of the residential real estate market and the stabilization of prices. In a C.A.R. survey, 40% of first-time home buyers reported that they would not have made their home purchase were it not for the tax credit.

These incentives to home purchase, along with low interest rates and lower prices, make this a good time to consider home purchases, especially for first- time  buyers.

While the compromise still must be passed by the full Senate, this agreement would extend the existing credit for first-time buyers, while offering a new credit of up to $6500 for some existing homeowners. This reduced credit would be available to all homebuyers who have been in their current residence for a consecutive five-year period in the past eight years.

Washington lawmakers also raised the qualifying income limits to $125,000 for single taxpayers and $250,000 for joint taxpayers from the current $75,000 and $150,000. Under the Senate compromise, buyers must have accepted contracts by April 30th and closed escrows by June 30th.

The new provisions are aimed at broadening availability of the credit beyond first-time buyers and giving the weakened real estate market a bigger boost while preventing real estate investors from benefitting. While Senate lawmakers appear to have reached a deal on the substance of the tax credit, they are still at odds over how it would be brought to the Senate floor. The measure still faces votes in the full Senate and House.