Now it’s not just first-time home buyers who are having all the fun.

Source: sxc.hu Photo: linder6580

Source: sxc.hu Photo: linder6580

The Obama administration earlier in November enacted a new $6,500 tax credit for existing home buyers looking to upgrade. Qualified borrowers can buy a bigger, more expensive primary residence or downsize and save space and money using the tax credit.

The government introduced the new credit while extending the successful $8,000 tax credit for first-time buyers. For each tax credit, buyers have to purchase by April 30 and close by June 2010 to qualify.

Industry experts remain hopeful that the tax credit extensions will help buoy the housing market. The new $6,500 credit went into effect in early November and is poised to open up the market for an entirely different group than the first tax credit applied to.

“The new version of the tax credit has the potential to stimulate the housing market even more than the old version due to the fact that more people will qualify under the new rules,” Gibran Nicholas, chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers, told CNN after the bill’s passage.

In order to utilize the new tax credit, buyers must have owned their current home for five consecutive years over the last eight. Those who file their taxes solo cannot have an adjusted income greater than $125,000; for joint filers, the income cap jumps to $225,000.

There are a few more key stipulations with the new credit. Among them:

  • The home price must be $800,000 or less.
  • Buyers must live in the new home, which can’t be used as an investment property or a second home.
  • Qualifying home types range from single-family structures to mobile homes and even house boats.
  • Buyers can claim the credit on their 2009 tax returns or file an amended return for 2008

Now, that you have the facts, here’s my take.  This is great for fiscally prudent people who are on the cusp of buying a home for the first time.  My advice is do it now!  Don’t wait in the hopes that prices will bottom lower or bet on mortgage rates.  The differences you’re likely to see there honestly won’t make up for the $8,000 shot in the arm you could see immediately.   This is especially true when you consider the fact that most first time home buyers are fairly low on cash and $8,000 is pretty significant.

As for the “move up” credit.  That’s not an amazing deal in my opinion.  Yes, it’s nice if you were already planning on moving and the timing works but if that’s not the case, I don’t think you should be swayed by just $6,500.  Home prices are down and it’s almost universally a seller’s market.  Hold on for a few years and I think you’ll make significantly more than the tax credit pays out today.

To learn more about the new $6,500 tax credit for existing buyers or the $8,000 credit for first-time buyers, visit the Mortgage Loan Place blog.