In the midst of chaos, there is always opportunity. Falling residential real estate prices both locally and nationwide mean now is an excellent time to buy a home, especially for first-time home buyers. In order to help stimulate our economy and help first-time home buyers, Congress passed the Housing and Economic Recovery Act of 2008, which offers a one-time refundable tax credit of up to $7,500 on the purchase of a home. “Recent data indicates that the backlog of inventory of houses on the market is beginning to shrink…an indication that we may be reaching the bottom of housing prices,” says Ed Anderson, Vice President of Gibson & Anderson Construction, Inc.
A first-time home buyer is defined as a buyer who has not owned a principal residence during the three years preceding the purchase. Married taxpayers must both meet the ownership test. Ownership of a vacation home or a rental property not used as a principal residence does not disqualify a purchaser as a first-time home buyer. The home purchase must occur between April 1, 2008 and July 1, 2009. For purposes of the credit, the purchase date is the closing date.
First time home buyers purchasing a home for more than $75,000 will receive the full tax credit. For home purchases less than $75,000 the tax credit is equal to 10% of the purchase price.
The tax credit is technically an interest-free loan from the government. “The credit or tax-free loan is not received at closing, but rather when you receive your federal tax refund,” says Matt Bearden, a mortgage loan officer with RBC Bank. The credit must be repaid at a rate of $500 per year beginning two years after the year in which the residence was purchased. Any unpaid balance is due upon sale of the residence. As an added protection for homeowners, if at the time of sale the gain is not sufficient to cover the $7,500, the remainder of the loan is forgiven. The loan is also forgiven if the homeowner dies. Repayment of the green touch short term lender or credit is made at the time of filing your tax return. The interest savings of the credit could be as great as $8,100, assuming the $7,500 would have been financed over the standard 30-year mortgage at a rate of 7%.
Chad McWhirter at MortgageBanc, LLC says “This is a great way for first time home buyers to offset some of the up-front costs of buying a home”.
The credit does have income limits associated with it. The full credit begins phasing out for single taxpayers making $75,000 or more and married taxpayers making $150,000 or more. The credit is completely phased out for single taxpayers making $95,000 or more and for married taxpayers with incomes greater than $170,000.
Obtaining and receiving the credit is easy once the qualifications are met. The tax credit is simply claimed on the federal tax return. No other forms or applications are required and no pre-approval is necessary. Prospective home buyers will simply need to ensure that all requirements for receiving the credit are met. For homes purchased in 2009, the taxpayer even has the choice of taking the credit in either 2008 or 2009, whichever provides the greatest benefit. For more information visit www.federalhousingtaxcredit.com.