Posted by: Brian Powers | December 22, 2010

Bill to Provide Tax Relief to Michigan Home Buyers Vetoed by Granholm

Senate Bill 77, passed by both the House and Senate in the Michigan state legislature has been vetoed by Governor Granholm.  The bill would have allowed foreclosed properties in Michigan to maintain their Principal Residence Exemption (PRE)  for up to 3 years, preventing home buyers from having to absorb the higher property tax rate that results from the PRE being rescinded and thereby making it easier to sell foreclosed homes.

When a property has its PRE rescinded it results in a significantly higher tax rate (18 mills).  Buyers purchasing a home with a non-PRE tax rate are saddled with the higher tax burden until the their PRE rate goes into effect for the next tax year.  This means higher out of pocket costs to the buyer at closing and less purchasing power in terms of home value.  How so?  Lets say you’re a home buyer and are pre-approved for a $1200/month mortgage payment with an FHA mortgage loan.  A portion of that $1200 is for principal and interest on the loan value of the home you are purchasing, and the rest is for property taxes and insurance.  The higher the property tax rate on the home you are purchasing, means the more of that $1200 payment is going towards taxes and not the purchase price of your home.  This means you will either have to settle for less house, or pay more money per month.

Senate Bill 77 would have allowed home buyers to immediately file a Principal Residence Exemption upon purchase of a home. By vetoing this legislation, Governor Granholm has made it more difficult for buyers to purchase foreclosed homes in Michigan.  All other factors equal, buyers will prefer non-foreclosure homes when buying, and foreclosed homes will continue to sit vacant and further deteriorate in value, pulling neighborhood values down with them.

Home buyers, be sure you are working with a Realtor who understands the impact the Principal Residence Exemption can have on you and your ability to buy a home.

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