Open Letter: Glaring Error In Homebuyer Tax Credit Amendment Eliminates Many

RedState, Senators, and Congressmen:

I love Sen. Johnny Isakson’s amendment to provide a $15,000 homebuyer credit to any homebuyer within a year of the stimulus bill’s enactment. However, I deeply concerned because he has inadvertently created a major gap for homebuyers with homes under contract that have not yet closed.

You see, the FHA grants mortgages with 3% down payments for first-time homebuyers. My wife and I placed a contact on our first home in July 2008 under these terms. We close in May 2009. We have diligently saved our 3% down payment and were greatly anticipating our $7,500 credit. This did not have a minimum down payment requirement. Further, we were more thrilled to learn we could get $15,000 back now instead of $7,500 until we read the text of the bill which includes a 5% down payment requirement on purchases this year and the credit replaces the $7,500 credit.

This means for people like my wife and I, who are expecting our first child in June and facing a salary cut, we would not only be excluded from the original $7,500 credit, but due to the 5% down payment requirement, we’d also be excluded now from the $15,000 credit.

Why are responsible 3% down payment buyers being excluded? Why are first-time homebuyers through FHA loans now excluded? With our first baby on the way, we may now have to forfeit the home altogether whereas the tax credit money would have made all the difference in paying for this upcoming short term costs.

I respectfully request for all of you to review this amendment and encourage all legislators to change the 5% requirement to a 3% requirement to conform to all federal home loan programs for responsible borrowers.

Here is the text from Sen. Isakson’s press release:

Specifically, Isakson’s amendment to the pending economic stimulus bill would provide a direct tax credit to any homebuyer who purchases any home. The amount of the tax credit would be $15,000 or 10 percent of the purchase price, whichever is less. Purchases must be made within one year of the legislation’s enactment, and the tax credit would not have to be repaid.

Here is the actual amendment text:



    (a) Extension of Credit.–Subsection (i) of section 36 (as redesignated by subsection (d)) is amended by striking “July 1, 2009” and inserting “January 1, 2010”.

    (b) Repeal of First-Time Homebuyer Requirement.–

    (1) IN GENERAL.–Subsection (a) of section 36 is amended by striking “an individual who is a first-time homebuyer of a principal residence” and inserting “an individual who purchases a principal residence”.


    (A) Section 36(b)(1)(A) is amended by inserting “with respect to any taxpayer for any taxable year” after “subsection (a)”.

    (B) Section 36(c) is amended by striking paragraph (1) and by redesignating paragraphs (2) through (5) as paragraphs (1) through (4), respectively.

    (C) The heading of section 36 (and the item relating to such section in the table of sections for subpart C of part IV of subchapter A of chapter 1) are amended by striking “


first-time homebuyer” and inserting “ 

homebuyer”.    (c) Repeal of Recapture Rules.–

    (1) IN GENERAL.–Paragraph (4) of section 36(f) is amended by adding at the end the following new subparagraph:

    “(D) WAIVER OF RECAPTURE FOR PURCHASES IN 2009.–In the case of any credit allowed with respect to the purchase of a principal residence after December 31, 2008–

    “(i) paragraph (1) shall not apply, and

    “(ii) paragraph (2) shall apply only if the disposition or cessation described in paragraph (2) with respect to such residence occurs during the 36-month period beginning on the date of the purchase of such residence by the taxpayer.”.

    (2) CONFORMING AMENDMENT.–Subsection (g) of section 36 is amended by striking “subsection (c)” and inserting “subsections (c) and (f)(4)(D)”.

    (d) Downpayment Requirement.–Section 36 is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection:

    “(h) Downpayment Requirement.–No credit shall be allowed under subsection (a) to any taxpayer with respect to the purchase of any residence unless such taxpayer makes a downpayment of not less 5 percent of the purchase price of such residence. For purposes of the preceding sentence, an amount shall not be treated as a downpayment if such amount is repayable by the taxpayer to any other person.”.

    (e) Effective Date.–

    (1) IN GENERAL.–Except as provided in paragraph (2), the amendments made by this section shall apply to residences purchased after December 31, 2008.

    (2) DOWNPAYMENT REQUIREMENT.–The amendment made by subsection (d) shall apply to residences purchased after the date of the enactment of this Act.


This was one of the only stimulating parts of the stimulus and for many they may have just been mowed down by poorly written legislation.

Please take a moment to pass this along to friends and family, media, and the Congress.


Mike Parrish