First Time Homebuyer Tax Credit Expires in 4 Months. Gameplan?

Posted by Erion Shehaj in Houston Real Estate, TipTuesday on Tuesday, August 4, 2009 | no responses

The First Time Homebuyer Tax Credit was originally established and applied to home purchases closed in 2008. Passed under the first stimulus package of the previous administration, it was basically a $7,500 interest free loan that homeowners would pay back $50 each month starting the third year of ownership or whenever they would sell the property. Under the American Recovery and Reinvestment Act of 2009, this tax credit was expanded to $8,000 and the repayment was waived so long as the homeowner lives in the property for the next three years as a primary residence.

$8000 Homebuyer Tax Credit 411

The National Association of Home Builders (NAHB) has a great free resource for those wanting to learn the specifics on this tax credit. Snapshot of main points:

1. The tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
2. The tax credit does not have to be repaid.
3. The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
4. The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
5. Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

In addition you may also want to check out NAHB FAQ page, IRS info, or HUD’s Press Release.

Tick Tock

In the past, I’ve shown you how you could stimulate your home purchase in 2009 by combining price reductions through smart negotiations and the First Time Homebuyer Tax Credit to land a steal of a deal. Now, it’s time to talk about timing. There’s 4 months left till this tax credit expires. 16 weeks. 120 days. So, what’s the rush? You could probably close on a house with some time to spare for a mini vacation, right? Think again. One of the conditions to qualify for the credit is that the transaction has to close by December 1st 2009. Due to a May 1st change in the way property appraisals are performed, average closing times are running anywhere from 45-60 days. That leaves you with about two months to find the perfect home for you and get it under contract. Depending on your price range, that’s not such a cakewalk anymore since we’re seeing bidding wars on foreclosure properties. Bottom Line: If you are looking to buy and want to take advantage of the $8000 tax credit, you might want to start looking sooner rather than later.

Moral of the Story

Honestly, the tax credit in and of itself, is no reason to buy a home. But if you are on the fence and looking, it makes no sense to let an opportunity to get a deal slip just because of procrastination. After all, in a real estate market like Houston’s where median home prices are in the mid $100s, this tax credit amounts to about a 5% additional discount on top of the price reduction you can get through smart negotiation. In the words of Warren Buffett: “Buy when others are fearful, fear when others are buying”.