Friday, November 21, 2008

Credit or a Loan? What About the Benefit?

Many have questioned the first-time home buyers credit, saying it's nothing more than a loan, and thus dismissing it. Technically it is a tax credit, but it does operate as a loan as it must be repaid. BUT, the important thing is to look at the benefit.
The majority of first-time buyers leave the closing table and have little left in savings after the purchase of their home. As new homeowners, they are now facing a mortgage payment that exceeds what they had paid in rent. They have a home to furnish, with more rooms to fill with furniture than their apartment in most cases. They may also need to spend money on painting, some redecorating, carpeting and window coverings. In addition, there are other home ownership necessities such as a lawn mower, ladder, garden tools and the like that must be purchased, not to mention the expense of making any costly repairs or improvements the home may require.
More often than not these purchases are made with a charge card, with interest rates that are upward of 17%. These additional monthly expenses for home-related purchases are in addition to the large monthly mortgage payment they now have. So why wouldn’t a buyer be excited about obtaining the $7,500 tax credit, and having the benefit of repaying it over 15 years without interest?
What if a first-time buyer really liked a home they saw that needed some major repairs or renovation, a home that represented a great buying opportunity? But after much consideration, they decided against buying it. They just didn’t have the financial resources after the closing to accomplish the type of repairs required, such as a new furnace or new roof or new siding or new windows. Wouldn’t the opportunity to obtain $7,500 in an income tax refund possibly be the answer to this type of concern?

Tuesday, November 11, 2008

Do You Understand the First-Time Homebuyer Credit?

There's a lot of confusion about the new first-time homebuyer tax credit. The fact that it's called a 'credit' is a good part of the confusion. It's not an outright credit since one must repay it. It's more like an interest-free loan. But the loan repayment term is generous - one has 15 years to repay the credit, which can be as high as $7,500.

The reason for the term 'credit' is that the money can be received as a credit against your federal income tax. That is, the $7,500 can be used to reduce your tax liability, or if you have none, or have already paid your taxes through withholding or estimated tax payments, then you will get the money sent to you.

Only homes purchased on or after April 9, 2008 and before July 1, 2009 are eligible for the credit. There are income limits for eligibility: up to $75,000 for single taxpayers and up to $150,000 for married couples. A first-time homebuyer is anyone who has not owned a home the previous three years, and the home you purchase to qualify for this credit must be used as a principal residence.

Any questions? Please feel free to call me at 734-439-8405.