The new Stimulus Plan recently signed into law by President Obama has set the stage for sweeping housing assistance. Though the main goal of the Stimulus Plan is to bolster the struggling economy with new jobs and spending incentives, a large part of the $787 billion package is intended to revitalize the troubled housing market.

The Stimulus Plan is officially named the American Recovery and Reinvestment Act and is designed to take effect on March 4th, 2009. On that date, the Stimulus Plan will affect housing by addressing the needs of homeowners in distress.

The two types of distressed homeowners

Homeowners in distress fall into two major categories. The first is the group currently at risk of losing their homes while the second category consists of those who are still current on payments but are struggling to afford their high interest rates. Those in the second group of homeowners typically do not have enough equity to qualify for a refinance.

Easing up on refinancing offers

Part of the way the Stimulus Plan will affect housing is by making money more easily available to lenders so they are able to help homeowners who desperately need to refinance their home loans. This includes providing $200 billion to major mortgage lenders Fannie Mae and Freddie Mac. In turn, these and other mortgage lenders will be better equipped to help distressed homeowners refinance their bad mortgages.

Helping new homeowners buy homes

In addition to helping existing homeowners with troubled mortgages, the Stimulus Plan will affect housing by boosting incentives for new homeowners. Through the new Home Ownership Tax Credit, first-time home buyers and those who have not bought a house in the past three years will be eligible for as much as an $8,000 tax credit. To qualify, the homeowners must purchase their homes before December 1, 2009 and must stay in those homes for a minimum of three years. The tax credit itself is calculated as 10% of the home’s purchase price, up to $8,000. Unlike past housing tax credits, this one does not have to be repaid to the federal government.

Boosts to loan limits and refinancing limits

To increase lending activity, the Stimulus Plan calls for FHA loan amounts to be raised to $729,750 for homes in higher cost neighborhoods. The goal is to help more people finance their way into areas where buyers have been priced out. FHA loans will also come with easier qualification standards. Loan limits for those who want reverse mortgage loans will also rise, making it possible for more seniors to use their home equity as a source of income.

In addition, any borrowers who have less than 20% equity in a traditional loan are now able to refinance up to 95% of their home’s market value. They can do so without having to buy private mortgage insurance, a normal stipulation for those with less than a 20% down payment or 20% equity. Saving on private mortgage insurance will potentially save homeowners as much as several hundred dollars per month.

Protection against foreclosure

The Stimulus Plan will positively affect housing for the millions of Americans facing foreclosure, thanks to a $75 billion allowance. This allowance will be divvied out to participating lenders who agree to assist any homeowner in danger of foreclosure.

Boosts for low-income and rural housing

States and rural housing programs will also receive a boost from the Stimulus Plan. It will come in the form of financing to help promote construction and repairs for low-income housing options along with additional financing for rural housing loan programs.

Tax credits for energy improvements

Finally, any homeowner who makes energy-efficient improvements to their existing home will enjoy tax credits for those improvements. Such improvements could include adding more insulation in an attic, installing weather-safe windows, or sealing air leaks and cracks around entryways, among other things.