Help for Homeowners Hangs in the Balance

The expansive definition of who qualifies as a "first-time" buyer is a plus in economically hard-hit areas where many former owners have become renters in the past several years.

But the tax credit would come with some noteworthy limitations. You have to pay the credit back to the IRS. If you continue to live in the house as your primary residence, you could have as long as 15 years to do so, but if you sell the house or convert it to some other use, such as a second home or investment property, then you'll have to repay more quickly.

There's also an income restriction of $75,000 for individuals and $150,000 for married joint filers. Beyond those limits, the maximum allowable credit would phase down. The credit program covers qualifying home purchases between April 9, 2008, and April 1, 2009.

The portion of the legislation that deals with financially distressed homeowners would help an estimated 400,000 borrowers. It is restricted, however, to owners who cannot afford their current loans and have a mortgage-debt-to-income ratio above 31 percent. The owner of the mortgage -- either a lender or bond investor -- must agree to reduce the balance of the principal amount to 85 percent of the current market value -- i.e., write off a significant chunk of what's owed.

If these and other conditions are met -- including homeowners agreeing to split any future appreciation with the government -- borrowers may qualify for a new fixed-rate, 30-year FHA loan they can more easily afford.

Kenneth R. Harney's e-mail address isKenHarney@earthlink.net.