Economic stimulus plan may spark housing market

News provided by Quicken Loans

President Bush and House leaders agreed yesterday on a $150 billion economic stimulus plan that could send rebate checks to 117 million American families and plug $50 billion into incentives for American businesses.

Under the proposed economic plan, nearly every person who earned a paycheck in 2007 would receive a rebate check from the IRS. Most would receive rebates of $600 each, or $1,200 per couple. An extra $300 per child (dependent) is included. A family of 4 would receive a total of $1,800 from the IRS.

Rebates would be fully available for taxpayers with an income under $75,000 ($150,000 per couple). The rebate would be a lesser amount for those who earn between $75,000 and $87,000. No rebate would be available for taxpayers with income over $87,000 annually.

The package also includes measures to spark a struggling housing market by raising the cap for conventional loans and for FHA loans. This would make it easier for home buyers to get or refinance a mortgage, especially in higher cost areas like New York, Florida and California.

The plan would raise the conventional loan limit cap to $625,000 for twelve months. Currently, the conventional loan limit is $417,000 (with the exception of Hawaii and Alaska). Any loan over that amount is commonly called a "jumbo loan." A jumbo loan, because of its size, carries more risk and is therefore more costly to a consumer. By raising the conventional loan limit, borrowers wanting up to $625,000 will be able to benefit from the lowest possible mortgage rates now only available to mortgage amounts under $417,000.

The portion of the plan relating to FHA loans would also raise the max loan limits for FHA loans. FHA loan limits are based upon the median sales price of local homes in a given area. Currently, an FHA loan can be written up to 95% of that local median sales price. The provisions in the plan would raise that limit to 125% of the local median sales price, up to a max loan amount of $729,000.

The current maximum FHA loan is $362,790, so this will have a huge impact on the amount of mortgages that may qualify for FHA. And these changes will be permanent (unlike the conventional loan limit changes which only last for 12 months).

The plan will be in the House of Representatives next week and if passed, will move to the Senate and could be back to the White House early in February to be signed by President Bush. The personal tax relief could begin to stimulate consumer spending and economic growth within 60 days of enactment, when the first rebate checks are scheduled to go out and the new loan limits can be adapted by lenders.

This article is reprinted by permission from Quicken Loans © 2008 Quicken Loans Inc. All rights reserved.