Have you ever heard of the Housing and Recovery Act of 2008? Well today we are going to focus on one of the benefits, the $7500 First Time Home Buyer IRS Tax Credit.
Even with interest rates at historical lows and with a wide selection of discounted homes on the market, people still weren’t buying, so the government came up with this tax credit to stimulate and provide financial assistance for First Time Home Buyers to buy now rather than wait.
The $7,500 First-Time Home Buyer IRS Tax Credit only applies to first-time home buyer purchases of a primary residence between April 9, 2008 and July 1, 2009. It is important to understand that this is a TAX CREDIT and not a TAX DEDUCTION. Now a tax credit is a reduction in income taxes owed! In other words, when a buyer files their income taxes for the year the home was purchased (April 2008 – July 2009), they may be able to subtract $7,500 from the amount of federal income tax liability, which will either put more money in your pocket as you will get an increased tax refund or reduce the amount of tax still owed.
However, this tax credit is not FREE. Yes, this is not a hand out from Uncle Sam; it is a loan that has to be paid back. Repayment will begin 2 years after the credit is claimed, and must be repaid within 15 years. So that’s a $500 payment per year. It’s an interest-free loan for 15 years.
Now before you get turned off by this “LOAN,” lets take a look on the benefits this $7500 tax credit may provide. Majority of first time home buyers have walked away from the closing table with an empty savings and or checking account once the purchase of their home is complete. Now they have a home to decorate, furnish and in some cases repair and paint. Majority of these first time home buyers will now turn to their credit cards to pay for these expenses, which will come with pretty high interest rates. So when compared to have a credit card payment which comes with interest charges, versus and an interest free $7500 loan…..it now seems a little more attractive.
Now for those of you first time home buyers that are a little more well off financially, this can still benefit you….here’s how.
Let’s assume a $200,000 mortgage was needed in the home purchase at 6.0% interest rate fixed for 30 years. What if the $7,500 tax credit was a refund which you used to pre-pay the mortgage? Using simple math that would be an annual interest savings of $437.50; which is actually less than the $500 payment per year on the $7500 Tax Credit Loan.
The main benefit here is not just the payment savings but the outstanding mortgage balance will be reduced by $7,500 and each future mortgage payment results in savings in mortgage interest and increased reduction in principal mortgage. As each monthly mortgage payment go to reducing the mortgage balance and less is applied to interest. Together these savings will exceed the $500 cost of repayment of the tax credit. The benefit over the long term in interest savings and principal reduction will be quite amazing. Talk about good old Uncle Sam helping you payoff your mortgage early!
Marlon Baugh is a nationally-known mortgage expert. Since 2003, he has specialized in FHA Mortgage Loans for people with Bankruptcies, Foreclosure or with other credit issues, as well as Commercial Mortgages. If you would like a Free Copy or to get instant access to the remainder of this Insider Mortgage Report, please visit http://www.specializedfinancialsolutions.com/own-a-home.htm or Call 954-678-5796
You might be taking a closer look at becoming a first time home buyer after Congress passed the housing bill recently. The bill includes a few incentives that really make now the perfect time to jump into the market and become a first time homeowner. Of course, the depressed real estate market is enough incentive for quite a few people wanting to take advantage of the lower prices of homes; however, the government is now offering a tax”>http://first-time-home-buyer-s.com/firsttimehomebuyer/38/tax-credit-for-first-time-home-buyers-2/”>tax credit for first time home buyers that makes it hard to not jump in. The full tax credit of $7,500 is exceptional as it is obtainable to couples who make no more than $150,000 in joint income, which makes a huge number of people able to qualify.
Quite a few people are feeling that the time is right for them to get active in the housing market, buy their first home and utilize the incentives including the tax credit. The people with the most to offer the market are the first time homebuyer who does not bring additional housing into the market; all they bring is their ability to buy.
The tax credit is appealing to many because it is not something in which you have to apply; it is something you claim when you do your taxes. However, the tax credit does not come without certain requirements and regulations.
The tax credit is based on 10 percent of the sale price of the house with a roof of $7,500. This means that a house that sells for $75,000 or more will qualify for the full $7,500 credit. A house that sells for $65,000 will only qualify for $6,500 credit.
It is also important to note that the tax credit is really more of an interest free loan that has to be paid back over a 15 year period. When you claim the tax credit you will receive the total amount on your taxes and will then have to pay it back over the next 15 years with the total remaining balance due if you sell your home before the loan is paid off. Since there is no interest on the credit it will cost you $502.50 a year if paying back the full $7,500 credit.
There are other incentives available through state programs and private programs such as a lower interest rate for public servants such as teachers, military, police and firefighters. These incentives are available for all, not just first time homebuyers.
Down payment assistance is also available from many lenders; however, the requirements and restrictions are a bit stricter now than they have been in the past. The credit score is very important when applying for a 0% down payment program.
A realtor can and often will point you to more incentive programs than even the ones discussed above. The housing market is defiantly a buyer’s market and for anyone who is considering entering the market now is the best time. To take advantage of the tax credit you will want to close on your new home before July 1, 2009 so you might want to start getting ready now before you lose out or the market changes.
There really is no great secret to finding a home. Though there are countless theories and techniques, finding a house comes down to perseverance and luck. You must be willing to work at putting yourself in the right place at the right time to find your dream home.
Consider your needs and your desired criteria for a home; number of bedrooms, basement or crawl, garage or shed, lot size, neighborhood, etc… Just look; do not call the number listed in the ad! When you are ready to see homes you will want to work with a real estate agent who will represent you to see that you are getting the best deal possible.
There are several reasons you should work with a realtor, including saving time and having a professional handle the paperwork. An agent who is familiar with the area you are looking in will be most helpful in finding a home that meets your desired criteria and fits your budget.
Some people feel that the most cost-effective method is to do it themselves. There are data bases containing real estate listings with public records data, area information, interactive maps and other details. Most of these data bases require a license and a membership fee to access the listings. Some are available to the public for no charge, but you must supply your personal contact information and email address for access.
There are specialized services to accommodate the do-it-yourself home buyer, but this is only recommended for experienced buyers. A first-time home buyer should work with a realtor.
Mark’s information is available to the public; no fees or membership requirements; view listings and read articles at http://www.under100000realestate.com/
