Monday, September 1, 2008

First Time Homebuyer? Give Me a Break!

The Housing Assistance Tax Act, which is a section of the recently passed Housing and Economic Recovery Act, provides some incentives to put the residential housing market back on it’s feet. Are you in a position to take advantage of them?

If you are (or will be) a first time homebuyer purchasing a home between April 9, 2008 and June 30, 2009, you may be eligible to receive a tax credit. Good news, right? This tax credit is kind of like a fifteen year, zero interest loan. Not a bad deal, huh?

The tax credit you can claim is equal to the lesser of $7,500 or 10% of the price of the home. So if you buy a $65,000 home, you can claim $6500. But, if you buy a $85,000 home, you can only claim $7,500. The main catch is you have to pay the credit back to Uncle Sam over the next 15 years. However, it’s interest free. You start doing so the second tax year following your home purchase, so you have a little breather before you start. If you sell your home before you’ve settled your debt, you have to pay it back upon sale. But you won’t owe the full amount of the outstanding credit due if your gain from the sale of your house is less than what you owe.

You have to qualify for the benefit, naturally. And the amount for which you can qualify varies. You have to be a first time homebuyer, as mentioned above (and that includes your spouse if you’re both on the loan) who has had no ownership interest in a principal residence for the past three years (date of your home purchase). You see, in the mortgage world, if you haven’t had a mortgage within this time frame, the fact that you owned and sold a home five years ago doesn’t count. Mortgage Lenders and underwriters want more recent history.

The tax break will not apply to you if you obtained a THDA (Tennessee Housing Development Agency) loan because the thought process is you’re already ahead from receiving benefit of use of proceeds from a tax-exempt revenue bond. In other words, the government’s already given you a deal. No double dipping allowed. You also can’t be a non-resident alien, and you have to keep your home for at least a year to claim this particular tax benefit. So, if you’re transferred and have to sell your home in six months, you’re out of luck.

There is an income cap that must be met for qualifiers. If you’re single, the benefits available start to dwindle if you earn more than $75,000 per year, or $150,000 for joint filers. It’s unavailable completely if you earn $95,000 individually or $170,000 jointly.

So is this deal a good one for you? How could you take advantage of it? Well, again, look at it as an interest free loan. You can put some nice appliances in a kitchen, finish out a basement or do some landscaping for this type of money. So, it can work to your advantage. But make sure you qualify before attempting to take this credit. It’s not the type of thing you want to make a mistake about because filing your taxes is serious business. And if you do qualify and it makes sense for you, spend your money wisely. The ultimate goal is to get this economy moving, so if enough people can take advantage of it, it just may work. It’s worth a try, right?

Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at Home Loans Plain Talk.

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