$7,500 Tax Credit!

This year has been filled with unprecedented changes in the financial sector, and more specifically the mortgage industry.  Because of the down-turn in the real estate market, congress has stepped in and passed legislation to provide some relief to these problems.  The most significant of this legislation comes in the form of HR 3221.  This bill will provide a much needed shot in the arm for the real estate market, and most importantly keep the majority of the DFW area from experiencing the woes being felt in other parts of the country.  HR 3221 eliminated down payment assistance programs (to be covered in another post), raised the FHA loan limit through 2009 and added the provision for a $7,500 tax credit.  So what does the $7,500 tax credit mean for the average person?  

1. Any 1st time home buyer purchasing a home between April 9, 2008 and June 30, 2009 will be eligible for a direct $7,500 tax credit on either their 2008 or 2009 tax return.
   
2. Keep in mind this is a $7,500 credit, not just an additional deduction.  That means if you were going to get a refund of $1,000, you will now be getting a refund of $8,500.
3. Single purchasers must make under $75,000 and married couples must make under $150,000 to qualify.
4. A 1st time home buyer is classified as someone who has not had an ownership interest in a property in the last 3 years.
5. Buyers who purchase after January 1, 2009 have the option to file for their credit on their 2008 or 2009 as there is a clause that allows the 2009 purchase to be counted as if it occurred before December 31, 2008.

This is not just free money from the government, but it is about as close to it as we will ever get. The $7,500 must be paid back in $500 increments over a 15 year period making it essentially an interest free loan.  This pay back has received some criticism in the media, but what most people don't realize is a homeowner's itemized deductions jump so much after the purchase of a home, that the $500 a year will not even be noticed.  With the elimination of the down payment assistance programs (DPA), buyers must now come up with 3% to put into an FHA transaction which have loan amounts available up to $271,050.  I feel like the elimination of the DPA programs were ultimately a good thing for the mortgage industry.  Over 60% of the foreclosures FHA had in 2007 were attributed to buyers that used DPA.  There is something to be said for working hard, saving for a down payment and putting your hard-earned money towards the purchase of a home.  Now with the this tax credit in place, a buyer could purchase their new home in January,  shortly after they could file their 2008 tax return and have the $7,500 to replace the money they had to put down.  Overall this credit is a great thing, and hopefully buyers will realize that as they contemplate the purchase of their 1st home!