How to Use Your $8,000 Tax Credit As a Down Payment on Your New Home
A Great Incentive!
For anyone who’s been on another planet and hasn’t heard about it yet…. President Obama created this $8,000 tax credit to stimulate the housing market. This is an incentive that’s doing wonders for the market. As of June 2009, almost half of home buyers are first-time buyers. That’s up from 20-25% as of a couple years ago. I hold that a good deal of sell my house Houston that momentum comes as a direct result of the Obama tax credit.
Don’t Lose Track of Time!
Remember that you’ll forego your tax credit if you don’t close on your new home by December 1, 2009. If you’re planning to close on your home by December 1, you should have found your dream home and gotten an accepted contract no later than October 15, 2009. Which means you should start your home search no later than mid-September, 2009. Believe me, the lenders are going to be swamped as December 1 draws near.
Don’t run the risk of losing your $8K tax credit because the lender can’t process your loan quickly…. leading to a close after December 1. Don’t wait till the last minute – get started today!
The housing market led us into the recession. President Obama is doing all he can to have the housing market lead us back out of it!
But until now, the problem was that you still had to come up with a down payment and closing costs, in order to buy a home.
HUD Saves the Day with a New Ruling
On May 12, the secretary of Housing & Urban Development allowed that the FHA will give you the ability to use your $8K tax credit to be used for a down payment.
Which is a great thing. Because until now, the biggest thing holding up first time homebuyers was the down payment. Obviously, it’s not easy to save 3-10% of the cost of a new home!
(Just a little history: prior to the 1980s, it was virtually impossible to get a home loan without at least 10% down! That’s changed quite a bit over the years.)
So, just how will this work?
You’ll need a short-term second mortgage for up to $8,000. You’ll sign for this loan at closing, and pay it off in full when you get your tax credit after filing your taxes next year.
Now, there is still some logistics about getting that bridge loan — you don’t want to end up paying through the nose for that, right? The type of bridge loan we’re talking about here will amount to a second mortgage on your new home. And second mortgages typically carry some steep costs – a couple points at closing, and an interest rate several points higher than a first mortgage. Monthly interest on a $8,000 loan, at an 8% interest rate is around $60/month. If you pay 2 points at closing, that’s about $160 added to your closing costs.
But, a number of states (including Ohio – where I practice) have Homebuyer Assistance programs that are a lot more attractive. In fact, in Ohio it’s an interest-free loan with no payments whatsoever!
Maybe the best time ever to buy a home?
I can’t think of another time in history when you’ve had incentives like this to buy a home. Here are three reasons why I say that:
The National Association of Realtors has indicated that never before has the federal government doled out any kind of tax credit leverage for buying a home — and now it’s $8,000! Which tends to be better than 5% of the average cost of a first-time home purchase in Cincinnati. Lucky you!
Interest rates on 30 year loans are still under 6% – historic lows! I’ve seen 30 year mortgage rates as low as 5% lately.
There’s more inventory – and thus a better selection of homes available than at any time in the last two decades. In most regions of the country, there’s at least nine months of inventory on the market. Comparing that to six months’ inventory for a balanced market, we’re still clearly in Buyer’s Market territory. And if you’re skilled enough to do a little work, you can buy a foreclosure home that will save you even more money! (Actually, these are known as REOs – Real Estate Owned (by the lender)