Friday, July 18, 2008

Update: Housing Bill Credits for First Time Buyers

Congress continues to work on resolving conflicting versions of the housing bill first discussed back in April. Word is that they're close to a deal. Here's the latest scuttlebutt as to what is planned (remember, though, that this is NOT YET FINAL):

- The credit (yes, that's a CREDIT, which is much more valuable than a simple deduction) will be $7500 .

- Eligible properties will include condos, co-ops, and single family residences.

- The credit is available to those with an AGI of less than $70K ($140 for joint returns), and is phased out above that limit.

- Credit is available only to first time buyers, defined as those who have now owned in the previous 3 years and who purchase between April 8, 2008 and June 30, 2009.

- A portion is to be repaid each year for 15 years, so it's not exactly free money, but rather will operate more like a 'loan.' However, it is a 'refundable credit', which means that even if you owe absolutely nothing in taxes, you can get this money refunded to you when you file. If you sell the property before the 15 years are up, then you will be required to repay the balance of the credit. Clearly Congress is trying to gear this opportunity towards those who intend to stay in their residences for the long term.

Though this isn't as generous as first planned, this nonetheless is a great way for first time buyers to get an up-front $7,500 to help with down payments and closing costs, enabling them to take advantage of this buyer's market sooner.

As I've commented in this blog many times, I find it takes first time buyers a minimum of 3 months to find a home they want at a price they're comfortable with, so this deadline of June 2009 gives buyers about 9 months to get started, in my estimation. However, real estate prices often fall sharply in the Fall and Winter, so you may want to get started sooner than later, so you can maximize how far that $7,500 goes!

Stay tuned as this bill makes its way through committee.


Anonymous said...

You seem very knowledgable on this new bill, so I was hoping you could answer a question for me on how the $7,500 credit will work.

I am a first-time home buyer who is interested in buying a home with an FHA loan. All I need is the down payment and I'm ready to go!

But what I don't understand is how do I get the $7,500 BEFORE I buy the home (so I can use it as a downpayment)? If it's a tax credit, don't I have to wait until I file my tax return in January (and have already purchased the home so that I'll qualify for the credit)? I don't understand how this is going to work to help people like me who need the money before escrow closes.

Katie Wethman said...

It's technically not a credit, it's a "loan" to be repaid over 15 years via your tax return filings. As far as I know, there's no way to get this money up front. You'll need to save that down payment on your own. However, what you CAN do is adjust your withholding so that your take home pay is greater sense loaning all that money to the IRS tax free all year. Just be careful that you don't under-withhold or you'll owe a penalty at the end of the year. By the way, I just posted an update on the Bill today (7/23), so be sure to check out the other posting. If you're doing FHA, note that the new down payment per the bill will be 3.5%, up from 3%.