I would like to start off by saying that every situation is different, however, I feel the new tax credit is not a good thing for the majority of home buyers. There I said it, let the comments come rolling in...... or read on and hear my take.
When President Bush signed Housing Stimulus Bill into Law last month, a tax credit was given to any home buyer that has not owned a home in the last three years, great right? Well yes and no. I have started to see different lenders and real estate companies advertising this, as if the government just cuts you a check, no where do you see the downside of this. I fear that buyers will see "Free Money" and put themselves into a situation that does not make the most economic sense for them.
According to National Association of Realtors the $7,500.00 tax credit is repayable over 15 years. Yes it would be very similar to an interest free loan with $500.00 a year payments for 15 years. Do I think this tax credit will be successful... yes, but I also think that buyers, Real Estate Agents, Lenders and Accountants must do there due diligence to educate buyers before they take advantage of this credit. The most overlooked point of this credit that I noticed is the recapture upon sale. Yes possible bad news for a good thing. Let's say for example a home buyer is to purchase a home and receive the maximum tax credit of $7,500.00. Then two years later their situation changes and they are forced to sell. They will be responsible for $6,500.00 to the government. In most situations sellers will be upside down when selling their home after two years in the current market. With the tough economic times can a Buyer afford to risk adding more to that? I don't know, I don't have all the answers but I feel this is a point where our industry needs to step up and inform our clients of the possible ramifications of it. Another key point to the Housing Stimulus package was prohibiting Down Payment assistance programs such as Genesis and AmeriDream; I look at the Tax credit as a similar demon. Buyers take their savings to put the money down to buy a home knowing that come tax time they will get $7,500 back. Essentially they are back to no money down again, except owing the Federal Government $500.00 a year over the next 15 years.
Again, I think that if an educated buyer makes an educated decision to use the tax credit, that is their prerogative, we as an industry must make it a point to educate, not use the "Hook" of a $7,500 tax credit to get a sale.
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