2008 First Time Homebuyer Tax Credit - Worth it?

[JeeberD]

Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years

I had no idea this was available to me until TurboTax told me so. It sounds like a great deal...a $7500 interest-free loan from the government paid back at $500/year for 15 years starting in 2010. The only downside that I really see is that if we sell the house before it's all paid back, we have to pay the balance of what's owed that year. And it's not like the wife and I are planning on blowing the money, it would go into savings and earn interest and be there waiting for us when our 26 year old HVAC goes kaput.


And another thing to take into consideration is that if Obama's stimulus package goes through, we may not have to pay the $7500 back at all...

Congress may change home buyer tax credit for the better - St. Petersburg Times

So...what does FOFC think about this tax credit?

[kcchief19]

The credit didn't really work the way anyone wanted it to but if you're eligible why not take it? It's a $7,500 tax-free loan. As you point out, it's a great deal if you just put it in the bank and earn interest or you use it as a rainy day fund instead of taking out a home equity loan or picking up credit card debt.

The housing industry is pushing hard to eliminate the repayment provision, so when you take that into consideration there's absolutely no reason not to take the credit -- if Congress does eliminate the payback provision, you would have essentially have thrown away $7,500 if you don't take it.

People call it a loan but really it's an advance -- instead of giving you $500 a year over the next 15 years, the government is giving you it now in one lump sum. You really won't miss the repayments either. With mortgage interest, property taxes and other deductions, you'll still probably end up with a tax refund each year depending on your withholding.

You're also protected if you move early. Even if Congress doesn't eliminate the payback provision, you only repay the deduction through capital gains on the house, not on equity. If you sell your house in two years and your home went up $2000 in value, that's all you'd pay back. If you sell your house for less than you bought it, you owe nothing. But any equity you've earned through paying down the principal is yours to keep.

I say take it.

[lordscarlet]

I wasn't aware of this. All I can say is that I got a $5,000 tax credit as a first time home buyer in DC and it was awesome. It did not have to be paid back, though.

[DanGarion]

I've pretty much figured we will end up taking it, even though I don't think we really need the credit. It's free money (as in no interest payback free). Heck it will pay for our windows this year and then we just give back $500 a year.

[PilotMan]

We were going to take it as well. I think this is the kind of deal that you don't turn down even if you have to pay it back. The problem with us is that we don't qualify because we used money from the Tax Exempt Mortgage Revenue Bonds program. We were able to get 8000 from the state that basically paid our downpayment and closing costs. We had to jump through major hoops to get the money, but we don't have to repay it as long as we live in the house for at least 5 years.

So we don't qualify for the loan, but we still get the benefits of the program because we are poor.

To answer your question, I think it's a no brainer, you take the money.

[Flasch186]

Whomever above said this did not work as intended is spot on. Not only was it not explained well, it wasn't marketed well, and the 'increase' in First time homebuyer's this brought out of the wood work was negligible at best. Take the money though.

[Lathum]

Question.

My wife and I bought a house in 2008. I am a first time buyer and she isn't, but we file jointly. Would I be elidgeable?

[Ironhead]

Originally Posted by Lathum

Question.

My wife and I bought a house in 2008. I am a first time buyer and she isn't, but we file jointly. Would I be elidgeable?

What is the definition of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

[Lathum]

thanks IH!

[digamma]

Originally Posted by Ironhead

What is the definition of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

Did you get that from clicking the link above? Fascinating.

[gstelmack]

Apparently I was a first-time homebuyer about a decade too late for all the free giveaways. And somehow we made it just fine. Sigh.

[kcchief19]

Here's another link that answers questions about the credit in somewhat plain English:
Federal Housing Tax Credit for First-Time Home Buyers: Home

Originally Posted by Flasch186

Whomever above said this did not work as intended is spot on. Not only was it not explained well, it wasn't marketed well, and the 'increase' in First time homebuyer's this brought out of the wood work was negligible at best. Take the money though.

Mostly because no matter how many times the home builders and Realtors said it was a tax credit skeptics would call it a loan. My association did a lot of local marketing and pushing for the tax credit. A local reporter said I was mistaken and it wasn't a tax credit and it was an "advance" until I showed her where the IRS calls it a tax credit. Congress messed it up too by watering it down.

The National Association of Home Builders is pushing hard for Obama and Congress to expand the credit to a max of 10% of a home's purchase price up to a cap of 3.5% of FHA limits, which would be between $10,000 to $22,000 depending on where you live. The payback revision would be eliminated and it would be open to all homebuyers. The other major change would be allowing buyers to apply the credit as part of their downpayment. The proposal would also provide a 2.99% 30-year fixed rate on homes purchased before July 1 and a 3.99% on homes purchased by the end of the year.

i doubt all of these provisions pass. Right now, it looks like the payback elimination, downpayment option and reduced mortgage rates are possible. I think expanding the credit to higher amounts and including all buyers will be a tough sell. I've read estimates that the full plan has a price tag of around $300 billion and word is that Obama and Congress are only willing to go to about $100 billion.

The argument is that housing is at the heart of the economic mess and until you get housing going again and stabilize housing values it will be impossible to solve any other economic problems.

[terpkristin]

I am not planning on taking it. Right now too many provisos attached to it, and at the moment I don't need the "advance."

/tk

[stevew]

Darn. Bought too early. Would just about be the amount I need to get this place the way I want it as well. No chance of this going retroactive to Oct 2006?

[Flasch186]

hence why im selling (owe 161K think I can get 230-250K) and then looking to buy another home this year with the possibility of spending some months relocated into the parents house, yuck.

[DanGarion]

Originally Posted by kcchief19

Here's another link that answers questions about the credit in somewhat plain English:
Federal Housing Tax Credit for First-Time Home Buyers: Home

Mostly because no matter how many times the home builders and Realtors said it was a tax credit skeptics would call it a loan. My association did a lot of local marketing and pushing for the tax credit. A local reporter said I was mistaken and it wasn't a tax credit and it was an "advance" until I showed her where the IRS calls it a tax credit. Congress messed it up too by watering it down.

But in the context of the way it is built right now, it really is just a loan. I mean, anyone trying to claim it's something different would be lying.

[RendeR]

Originally Posted by DanGarion

But in the context of the way it is built right now, it really is just a loan. I mean, anyone trying to claim it's something different would be lying.

Actually its not a loan, a loan would indicate a repayment with interest. It is actually a simple advance on your income tax refund. So long as you normally and regularly get at least 500+ in your refund, you are not going to be paying back anything.

Its your money, they're simply packaging up and letting you take it early.

[PilotMan]

Just about any financial advisor that I have read has said that money now is better than money later. Barring crippling deflation, 7500 dollars today is going to be worth more than 500 dollars a year over 15 years. Even if you have to repay it, it's still a better deal.

[Doug5984]

If you can get it- and invest it, in something as simple as a money market account- it is one of those rare instances of free money... I was 2 years 2 early on my home purchase.

[CU Tiger]

I dont qualify for a few reasons, but if you do this is a no brainer. If you take the 7500 and stick it in a tiered CD it'll net 3% and you pay it back dollar for dollar without interest. Inflation really doesnt play into this as interest is not involved. You pay it back with the money your borrow...free money, albeit a small amount

[Doug5984]

I'm sure we have someone who could whip up a quick spreadsheet and tell you exactly how much free money it is, paying back $500 a year, over 15 years, with it netting 3% interest in a CD. 1st year 7500 * 3%, 2nd year 7000 * 3%, and so on.

[CU Tiger]

Originally Posted by Doug5984

I'm sure we have someone who could whip up a quick spreadsheet and tell you exactly how much free money it is, paying back $500 a year, over 15 years, with it netting 3% interest in a CD. 1st year 7500 * 3%, 2nd year 7000 * 3%, and so on.

Sure but itd be more like
1st year 7500
2nd year 7225
3rd year 6941
4th year 6650
5th year 6349
6th year 6039
7th year 5721
8th year 5392
9th year 5054
10th year 4706
11th year 4347
12th year 3977
13th year 3597
14th year 3205
15th year 2801
Each value is the balance after paying the $500 payment each year.
So if you *could* get 3% on a 1year CD you would make 2,801 after paying the loan back....assuming of course you never touch it. My local CU is paying 2.75% on a CD so its not out of the question.

Now if you are a great stock picker and can get 14%....well

[DanGarion]

Originally Posted by RendeR

Actually its not a loan, a loan would indicate a repayment with interest. It is actually a simple advance on your income tax refund. So long as you normally and regularly get at least 500+ in your refund, you are not going to be paying back anything.

Its your money, they're simply packaging up and letting you take it early.

I just can't agree with you. I understand your point but the word loan doesn't automatically mean repaying back with interest. When I loan a friend a couple bucks I'm not expecting him to get me more then I gave him back.

Now as for the advance on someones income tax, I'd love to see the numbers on how many people get money back compared to how many people end up paying on April 15th.

They are loaning your money early, hence it is a loan. It's your responsibility to do your taxes correctly so you end up not getting screwed by having to pay more back (just like it is with or without the money).

But that's just my opinion...

[chesapeake]

This is a synopsis of the change included in the portion of the stimulus bill passed by the House Ways & Means Committee last week:

Refundable first-time home buyer credit.
Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10 percent of the purchase of a home (up to $7,500) by first-time home buyers. The provision applies to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit are currently required to repay any amount received under this provision back to the government over 15 years in equal installments, or, if earlier, when the home is sold. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The bill would eliminate the repayment obligation for taxpayers that purchase homes after January 1, 2009. The provision would retain the credit recapture if the house is sold within three years of purchase. This proposal is estimated to cost $2.562 billion over 10 years.

[chesapeake]

BTW, I think this provision almost definitely will pass the House. I think it is likely to be in the final stimulus package because the $ amount is not too big in the greater context of the overall package.

[Chubby]

Interetsing.

We are looking at houses right now and my fiancee would qualify as long as we purchase before we are married (since I already used mine up years ago).

+1 to this thread

[RendeR]

Originally Posted by DanGarion

I just can't agree with you. I understand your point but the word loan doesn't automatically mean repaying back with interest. When I loan a friend a couple bucks I'm not expecting him to get me more then I gave him back.

Now as for the advance on someones income tax, I'd love to see the numbers on how many people get money back compared to how many people end up paying on April 15th.

They are loaning your money early, hence it is a loan. It's your responsibility to do your taxes correctly so you end up not getting screwed by having to pay more back (just like it is with or without the money).

But that's just my opinion...

I have known one person in my entire LIFE that has had to pay in at tax time.

That person was ME and its because I screwed things up myself. it happened 1 time in my tax filing life.

I think the vast majority VAST, of normaly joe citizens get a refund of some amount back every year. Unless as you say, they aren't responsible enough to set things up properly.

Either way, its still your money, take it now, its worth more now than later.

[DanGarion]

Originally Posted by RendeR

Either way, its still your money, take it now, its worth more now than later.

Oh yeah I agree with you. That's what I said in the first place.

[Galaril]

Originally Posted by chesapeake

This is a synopsis of the change included in the portion of the stimulus bill passed by the House Ways & Means Committee last week:

Refundable first-time home buyer credit.
Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10 percent of the purchase of a home (up to $7,500) by first-time home buyers. The provision applies to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit are currently required to repay any amount received under this provision back to the government over 15 years in equal installments, or, if earlier, when the home is sold. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The bill would eliminate the repayment obligation for taxpayers that purchase homes after January 1, 2009. The provision would retain the credit recapture if the house is sold within three years of purchase. This proposal is estimated to cost $2.562 billion over 10 years.

He is a question we closed on our house May 28th 2008 does that fall in that window when it says purchased date?

[chesapeake]

That date would fall within the threshold of qualifying for the original tax credit. But the new language under consideration by the House would not apply, so you would have to repay the credit if you chose to take it.

This assumes that both you and your spouse are 1st time homebuyers.

[chesapeake]

Originally Posted by RendeR

I have known one person in my entire LIFE that has had to pay in at tax time.

That person was ME and its because I screwed things up myself. it happened 1 time in my tax filing life.

Actually, if you are really responsible, it is generally to your benefit to cut a check at tax time. You come out ahead on the accrued interest. People who get refunds just gave a no-interest, short-term loan to the federal government.

[DanGarion]

Originally Posted by chesapeake

Actually, if you are really responsible, it is generally to your benefit to cut a check at tax time. You come out ahead on the accrued interest. People who get refunds just gave a no-interest, short-term loan to the federal government.

DING!

[Galaril]

Originally Posted by chesapeake

That date would fall within the threshold of qualifying for the original tax credit. But the new language under consideration by the House would not apply, so you would have to repay the credit if you chose to take it.

This assumes that both you and your spouse are 1st time homebuyers.

Thanks and we are both first time buyers

[Galaril]

So, I see that Republicans are proposing icreasing thios credit to 15,000. Iam pretty sure that is on home bought in 2009 though Theya re also prosing Fannie Mae and others to negotiate maortgagae rates at 4-4.5% that would even include existing mortagages that go through refinancing to get the lower rates. I haven't figured out how that would save me on my existing mortgage at 5.7%. I believe when I asked the mrotgage broker about this they had said it wouldn't be worth it until it was at least one full point below an existing rate.

[sterlingice]

Originally Posted by Galaril

So, I see that Republicans are proposing icreasing thios credit to 15,000. Iam pretty sure that is on home bought in 2009 though Theya re also prosing Fannie Mae and others to negotiate maortgagae rates at 4-4.5% that would even include existing mortagages that go through refinancing to get the lower rates. I haven't figured out how that would save me on my existing mortgage at 5.7%. I believe when I asked the mrotgage broker about this they had said it wouldn't be worth it until it was at least one full point below an existing rate.

I'm quite intrigued with this plan, the Fannie Mae/Freddie Mac part (the 15K tax credit is the same old tax cut stuff). What are the pluses/minuses of that plan as the AP story is just the outline?

SI

[kcchief19]

Republican senators devise plan to help stimulate home buying - Kansas City Star

Essentially the Senate plan is double to existing tax credit to $15,000 and extend it to all homebuyers Jan. 1 through Dec. 31 with no payback provisions.

The loan provision would essentially require Fannie and Freddie to buy any mortgage made by banks at the 4 or 4.5 percent rate to qualified buyers. The cap supposedly is $625,000. I'm hearing there are possibilities to tie it to FHA loan limits which would make it a different amount depending on the cost of housing in your area.

Mitch McConnell is on board and Chuck Schumer has indicated support on the Democratic side. Barney Frank is carrying the rainwater in the House so there appears some bipartisan support to get it done. If Obama comes out in favor, it'll go through.

[Galaril]

Originally Posted by kcchief19

Republican senators devise plan to help stimulate home buying - Kansas City Star

Essentially the Senate plan is double to existing tax credit to $15,000 and extend it to all homebuyers Jan. 1 through Dec. 31 with no payback provisions.

The loan provision would essentially require Fannie and Freddie to buy any mortgage made by banks at the 4 or 4.5 percent rate to qualified buyers. The cap supposedly is $625,000. I'm hearing there are possibilities to tie it to FHA loan limits which would make it a different amount depending on the cost of housing in your area.

Mitch McConnell is on board and Chuck Schumer has indicated support on the Democratic side. Barney Frank is carrying the rainwater in the House so there appears some bipartisan support to get it done. If Obama comes out in favor, it'll go through.

So for what year is this proposed tax credit change starting at 2009 or 2008. What I mean is this only for those whoare buying homes this coming year or is it also for people who purchased homes last year?

[JeeberD]

Originally Posted by Galaril

I believe when I asked the mrotgage broker about this they had said it wouldn't be worth it until it was at least one full point below an existing rate.

Interesting, considering I got 6.35% on my loan...

[Chubby]

if the new proposal goes thru that would be huge for us as we're looking to buy a new home currently

[Mike Lowe]

How quickly will this be happening? The wife and I are closing on a home around March 2nd. We are locked in at 4.5% already, having bought the rate down from 5%, but would LOVE to have it that low without buying it down as we could do the same thing and get the interest rate into the 3's.

Also, sounds like we could apply for the tax credit no problem...

[Sublime 2]

Quick question:

For the tax credit, if we purchase in 09 can we still apply the credit to our 08 returns like we could w/ the previous rendition?

[DanGarion]

Well now it really can be a credit, instead of a loan it looks like, as long as this gets through. I'm starting to be happy we closed on our house in 2009 instead of 2008...

Riverside and San Bernardino real estate blog: More on the $15k tax credit

First of all, lets not get to excited as this is not a done deal yet. I don't like much of anything about these bailouts. But if they are going to give away $15k, I'll be happy to take it my serving.

Here's the whole thing if you want to read it.

It looks like this modifies the old $7500 tax loan program. This one is a tax credit though and NOT a loan. The qualifying max income caps have been changed from $75k as a single to $125K and the joint max income went from $150k to $250k (yippee). This makes just about every "normal" family eligible for this credit. You have to be WAY up there in the income brackets before you lose out on this one.

Any purchase made after Dec 31, 2008 will qualify. It looks like this is a $15k credit that can be used as part of your down payment if I read the thing right.

(g) Transfer of Credit-

`(1) IN GENERAL- A taxpayer may transfer all or a portion of the credit allowable under subsection (a) to 1 or more persons as payment of any liability of the taxpayer arising out of--

`(A) the downpayment of any portion of the purchase price of the principal residence,

`(B) mortgage, flood, and hazard insurance premiums in connection with the purchase and paid at or before closing,

`(C) interest on any debt incurred to purchase the residence,

`(D) State and local real property taxes paid in connection with the purchase, and

`(E) funding fees paid to the Department of Veterans Affairs in connection with the purchase.

[stevew]

Seems like the problem in the first place was people buying with no money down. I guess tne government is looking to formalize the process?

[Flasch186]

please, the no money down was a small portion of the problem. It was the batting of the eyes at the credit score and the falsifying or steering of docs that was the biggest problem. The minimal DP was not the main issue although you'd think it was the way some people focus on the poor in this issue...I have news for you. The people buying the McMansions that you see as foreclosures around were not considered poor when they bought the home, as a matter of fact, they had the money to put down but why would you when the arm youre getting the loan for is a rate of 2.99%? Be real.

[Flasch186]

DOLA and for what its worth, some of the homes you see in foreclosure are not from people who cant afford the payment anymore but choose not to throw their money at it when it's 100K or more underwater. Rather keep the cash then be the only ones playing by the rules.....the banks werent and arent.

[sterlingice]

I'm not in real estate like Flasch, but it's good to see someone who is in the know confirming what I already had been supposing for over a year now. The explanation being sold by some quarters just doesn't pass the smell test.

What has really bugged me with the spin about the mortgage crisis is that it was clearly the poor who got us into this mess with a subtle racism component (and some Clinton bashing) thrown in for good measure. Now, if you are a first time homebuyer and put nothing down on a home for, say, $100K or even $150K- sure, you could lose your home. But those weren't the people $100K or more upside down on their homes- there was no where for those prices to go. They still have their value and someone else moved into that $100K or $150K home as rent prices are comparable to a mortgage on that home.

It was people who moved into $250-$750K grossly overvalued McMansions who put little down, some with the intent to stay, many with the intent to flip for a profit. But they took out stupid loans and got too much house. That's who created this mess. My parents moved from the home where I grew up into a $300K home in suburban Houston about 10 years ago. They used the sale of our old home for a down payment and are probably quite close or at least very well on their way to paying it off at this point with no difficulty. A lot of their neighbors aren't nearly as lucky and it's the type of neighborhood where there are a lot of for sale and some foreclosed signs. My parents never understood how some of them moved there in the first place and now it's quite apparent they shouldn't have.

SI

[DanGarion]

Originally Posted by stevew

Seems like the problem in the first place was people buying with no money down. I guess tne government is looking to formalize the process?

I was about to say show me a home that only needs 15k to cover the 20% down, and then I remembered not everyone lives in SoCal.

[Sublime 2]

Originally Posted by DanGarion

Well now it really can be a credit, instead of a loan it looks like, as long as this gets through. I'm starting to be happy we closed on our house in 2009 instead of 2008...

Riverside and San Bernardino real estate blog: More on the $15k tax credit

We close on our house this afternoon...WAHOO!!! But I've seen it listed in a few places that the 15k tax credit will only be for people who buy their homes AFTER the bill is enacted. Therefore, I would miss out on the 15k non-refundable tax credit, and only be eligible for the 7.5k non-interest loan. That would really make me pretty upset, but if what you posted is true, I'll be VERY happy.

[Flasch186]

Originally Posted by sterlingice

I'm not in real estate like Flasch, but it's good to see someone who is in the know confirming what I already had been supposing for over a year now. The explanation being sold by some quarters just doesn't pass the smell test.

What has really bugged me with the spin about the mortgage crisis is that it was clearly the poor who got us into this mess with a subtle racism component (and some Clinton bashing) thrown in for good measure. Now, if you are a first time homebuyer and put nothing down on a home for, say, $100K or even $150K- sure, you could lose your home. But those weren't the people $100K or more upside down on their homes- there was no where for those prices to go. They still have their value and someone else moved into that $100K or $150K home as rent prices are comparable to a mortgage on that home.

It was people who moved into $250-$750K grossly overvalued McMansions who put little down, some with the intent to stay, many with the intent to flip for a profit. But they took out stupid loans and got too much house. That's who created this mess. My parents moved from the home where I grew up into a $300K home in suburban Houston about 10 years ago. They used the sale of our old home for a down payment and are probably quite close or at least very well on their way to paying it off at this point with no difficulty. A lot of their neighbors aren't nearly as lucky and it's the type of neighborhood where there are a lot of for sale and some foreclosed signs. My parents never understood how some of them moved there in the first place and now it's quite apparent they shouldn't have.

SI

not entirely true. The brokers were pushing these loans on people late to the party who in many cases didnt qualify under normal DTI's so they would qualify them on an adjusted DTI. Why? Because the brokers actually made more $ on the boutique loans than on the FHA loans at the time. The buyer didnt know which loan was better per se, they just knew their payment was lower and they couldnt believe that the home they were about to buy was the house of their dreams. They probably couldve afforded to put 3% down for an FHA loan but the broker and the realtor encouraged them not to. It's not as easy as pointing the finger at just one group to say they caused this mess, I mean, shoot you could point your finger at the appraiser and say without his BS appraisal that loan wouldnt fly anyways, PLUS you have the followup lenders wanting to do HELOC's on the heels of the first mortgage so you immediately upon day of movein get a letter in the mail saying that for NO money out of pocket they'll give you $20,000 (the fees are rolled in).....

you can point the fingers all over the place but it really ALL boiled down to MBS' and the house of cards that was built on top of it which is why I getg so pissed off when the banks refuse to work with anyone downstream. They created these exotic products and now they cant imagine why there are so many foreclosures and such, um, hello?! See that $300K rug in your company's foyer? there is your fucking answer.

So NO, I disagree with you. Youre pointing the finger at the last people at the trough. Im pointing it at the first group of people who got to the trough and said, "holy fuck, I know how we can glaze this trough in gold, and put little hoses off of it to reach everyone, AND we'll pay people to come drink from it." IMO, they are the creators of this mess but that's my $.02 and your opinion im sure will vary. I went back and underlined what you misapplied, IMO, or overlooked.

[DanGarion]

Just an FYI, I guess there are a couple different versions of the bill floating around one that says after the bill passes and another that says home sales after Dec. 31st 2008.

Those are significantly different.