First Time Home Buyer Tax Credit

I have been receiving a lot of calls lately about HR 3221 and more specifically about the $7500 First Time Home Buyer Tax Credit.  As The Utah Mortgage Insider it is my duty to post about it today and answer everyones questions about exactly who qualifies and how it works.

Anyone who has not owned a home during the last 3 years falls into the governments definition of a first time home buyer and would therefor qualify for the tax credit.

The tax credit is not a typical tax credit, it is set up as an interest free loan of up to 10% of the purchase price of the property (not to exceed $7500).  This tax credit (should you choose to receive it) will come to you as a credit on your filed income tax return.  For example if you are a first time home buyer by definition and you are owed a tax refund from the IRS of $2000 and you have purchased a home between April 8, 2008 and July 1, 2009 then you are entitled to a refund of up to $9500.

The $7500 tax credit is an interest free loan for 15 years with payments made each year when you file your taxes.  The minimum payment due each year is $500.  If one chooses to pay the minimum each year the interest free loan will be paid in full in 15 years.  If at anytime during those 15 years you should sell your home or cease to occupy the home as your primary residence, the balance of the loan becomes due.

There are some income restrictions for qualifying for the credit.  Singles making up to $75,000 and married couples making up to $150,000 qualify.

Should you take the money?

Sure when I was a first time home buyer there where many things I could have used the money for, here are a just a few you may want to consider: Home improvement (if you purchase an older home, things that add the most value are bathroom remodels and square footage additions), build your slush fund for unexpected expenses, fund an IRA, or pay off a high interest rate credit card.

You can't beat interest free but just remember that it is a loan and not free money all together.

For more information

As always consult your CPA or Financial Planner for professional tax and investment advice.

Thanks for your calls and emails.  Feel free to call me with any of your mortgage questions at 801-655-5111 or email StetsonLowe@Gmail.com.

Keeping you in the Loop,

Stetson Lowe - The Mortgage Insider

Comments

[Wheat Ridge Colorado real estate]

If one is really a smart buyer, he/she will not buy a real estate property which is not in a good condition. A smart buyer will always think of her/his money before investing into such. Thanks for sharing your experience.

-Audrey

[Stetson]

Thanks Audrey for your comment. I agree and disagree with what you said. There are many times when you can find outstanding deals on homes that need repairs or are in less then perfect condition. As long as you budget properly for the upgrades and either have the experience yourself to make the repairs or are prepared to hire out the work I feel it is a smart move.

This tax credit has been replaced by the new $8000 tax credit which is not required to be paid back.

Thanks for your comment.

Stetson

[Denver Mortgage]

Has it increased?

[Stetson]

Yes the original credit I spoke about in this post was increased to $8000 and if you buy a home this year in 2009, you are not required to pay it back. Nothing better then free money right!