Obama’s Home Buyer Tax Credit
I got a call from a new buyer last night, who was wondering what the details of the 787 Billion Dollar Stimulus Bill had for First Time Home Buyers. As I wrote about a couple weeks back, there is up to an $8,000 Tax Credit for First Time Home Buyers if they close on a primary residence between Jan 1, 2009 and Nov 30, 2009.
This buyer was under the impression that the government would give the new home buyer this $8,000 up front, to help cover the cost of buying the home. However, this is incorrect.
The $8,000 Tax Credit is just that – a Credit back on your Income Tax Returns. So, in essence, the two are unrelated. If you are buying a house soon (or already bought one this year) then you may be able to file for, and receive, this Tax Credit on your 2008 Tax Returns. It may also be possible for some people to file an extension and receive the money later on in 2009 if the plan on buying over the next several months. Otherwise, you should file for it on your 2009 Tx Returns Next Year to receive the money.
Let me give you my quick opinion on why this is a good route to take, instead of giving people $8,000 to buy the house up front.
First, I think it’s a good idea to make people prove that they have the financial means to cover the cost of acquiring a home, and making the monthly payments necessary for that house. Under an FHA Mortgage, the home owner needs only 3.5% for a down payment, which means if Obama gave people $8,000 that would allow them to put 3.5% down payment on a $228,571 house using these number.
- ($8,000 / .035 = $228,571)
Now, how many First Time Home Buyers do you know that can afford the mortgage payments on this amount of a loan?? I have only worked with 2 in the past year that could afford to pay anything near this amount, and even they were pushing it.
So by making new buyers demonstrate their financial stability before they buy, Obama is protecting them from over-extending themselves on the loan payments which is what happened to so many people in the early to mid part of this decade. This is smart by the Obama Administration.
Second, I believe by giving First Time Home Buyers a check for up to $8,000 we will see a renewed sense of pride in the housing market, and also the economy at large. The $8,000 can go towards anything they want, and they are likely to use it on home improvements, paying off other unsecured debt, or just buying some new furnishings for their property. Whatever they use it for, the economy will be better off having them inject money back into the market.
Now, I know some people may not be happy that you have to buy the home first, and then receive this tax credit. But hopefully they will look at it from all angles.
Owning a Home is not a right – it’s a privilege. And too many people treated home-ownership with disrespect over the past 5-10 years. I, for one, am happy owning my house and being a good standing member of the community. But we all know someone that isn’t fit for being a home owner (at least not right now in their lives).
There’s no shame in renting if that’s what fits your personal situation. And there will always be an opportunity in the future to get back into the housing market. It’s always rebounded before, and with this new Stimulus Bill and the First Time Buyers Tax Credit, I think we will make it back again.
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