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The Fate Of The Home Buyer Tax Credit? Will It Be Extended?

Home buyers in danger of missing out on the June 30 deadline to claim their $8000 federal tax credit may have new life. The U.S. House of Representatives today voted 409-5 to extend the first time home buyer tax credit by three months giving home buyers until September 30 to complete their sales. The Senate is expected to consider this measure tomorrow. Earlier the Senate failed to make any progress on a more comprehensive jobs bill that included a provision regarding the home buyer tax credit.

The House’s extension does not affect those currently looking for homes. The extension applies only to those who had previously signed a purchase agreement prior to the April 30 deadline. The issue here is simply allowing additional time to complete the paperwork involved in these transactions. Sources estimate that as many as 180,000 people could miss out on this credit if the deadline is not extended.

One reason for this is the large number of short sales involved. Short sales, or lenders agreeing to allow a home to sell for less than what is owed on it, are more complicated and take longer to process. The estimate is that as many as 75,000 of the transactions in danger of missing the June 30 deadline involve short sales.

If potential home buyers are unable to complete their transactions in time to qualify for the tax credit, experts fear that many of these sales will fall through and the real estate market will be flooded with these homes. It seems that the tax credit may have helped increase home sales in the U.S. as home sales fell after the April 30 deadline. New home sales fell 33%, and mortgage applications reached their lowest level since 1997.

Critics of the tax credit extension claim that the House bill could raise the federal deficit by as much as $9 million over the next decade. Critics also say that the extension invites potential fraud. Home buyers would have time to back date purchase agreements and then complete the paperwork to close on their home by the new September 30 deadline.

Around the country several states have either passed or are considering home-buying incentives of their own. California passed a $200 million state tax credit for those buying a home after May 1. The California credit is good for up to $10,000 over three years for anyone who buys a new home or first-time buyers who buy either new or existing homes. Texas currently has a mortgage credit which allows home buyers a tax credit for a part of their mortgage interest.