New Loan Limit Amount

President Signs Economic Stimulus Package

Good news! On February 7, the Senate reached an agreement and passed its economic stimulus package by a bi-partisan vote of 81-16. Within hours, the House accepted the Senate's measure by a vote of 380-34 and sent the final bill (H.R. 5140, as amended) to President Bush for his signature. On February 13, the President signed the bill.

What does all of this mean? The biggest news in my opinion is that the plan increases the loan limits for Fannie Mae and Freddie Mac and also FHA loans. These types of loan normally have a lower interest rate and were previously capped at $417,000. Not anymore:

• The FHA limit will increase to as much as $729,750 in high cost areas (to 125 percent of local median home prices) for loans approved on or before December 31, 2008. In addition, the measure gives the Secretary of HUD the discretion to raise any individual area loan limit by an amount not to exceed $100,000.
  
• The GSE limit will be increased up to $729,750 for loans originated after July 1, 2007, to December 31, 2008. Currently, Fannie Mae and Freddie Mac are capped at $417,000. It appears the formula mirrors that used by FHA, with GSE loan limits increasing to 125 percent of the local median home price, but not to exceed $729,750.

The tax centerpiece of the stimulus package is a tax rebate provision. The rebate will be $600 ($1200 for those who file a joint return). In addition, individuals with children (generally minor children or some older dependents) will receive rebates of $300 per child, with no limit on the number of eligible children. The rebate will phase out for those with adjusted gross income above $75,000 ($150,000 on a joint return). The IRS will likely begin sending the rebate checks in late May, following the 2007 income tax filing season.

In addition to the rebate, two business tax provisions will provide benefits to small business. The first would permit a business to deduct as much as $250,000 of the cost of otherwise depreciable property. This expensing provision applies to property acquired and placed in service during 2008. A second provision would provide a "bonus" depreciation deduction for the cost of leasehold improvements and certain other equipment. The bonus will be 50 percent of the cost of the improvement. The provision is effective for improvements placed in service during 2008. Improvements placed in service during 2009 will be eligible for the bonus deduction, but only if they are made pursuant to a contract entered into in 2008.

So, overall, this is positive news for the Bay Area real estate market. The interest rates on future home purchases should be lower, helping to strengthen the real estate market. Should you have any questions, I'm always available at Ron@RonAbta.com