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.
Like you said, clients need to be explained several scenarios and risks of their investment. That way the can make educated decisions for themselves with the credit. It won't be for everyone. Thanks for the information.
Thanks for the comments Jan, it all comes down to an educated decision!
Hey You!
I like the post - but I was under the understanding that if you were to sell your home, lets say after 2 years, and happened to be upside down, the remainder of the balance owed to the IRS would just be written off - the seller would not be obligated to pay. If they were to sell within the 15 years, the balance of the interest free loan would be paid out at closing, provided the funds to repay are there.
I agree with you that everyone in the industry should do their due diligence when representing a client that can take advantage of this tax credit. I think it will be a great way to get first time home buyers into a home, and with the vast supply of foreclose homes on the market across the country, that $7,500 could go a long way to make necessary repairs and updates to a property that is in rough shape, thus helping the neighborhood and market area. Not many first time home buyers have an extra few thousand dollars to do repairs or buy more efficient apliances and the like.
I don't think I would compair it to a down-payment assistance program like you have. Buyers will HAVE to have that money to buy come October 1. Yes, come tax time they get the $7,500 and do with it what they please - but they DO NOT pay interest on it - what bank will give you $7,500 and 15 years to pay back $7,500? NONE! I think taking away the down-payment assistance programs will hurt our industry, but it can only help the bigger problem - people buying/owning homes they cannot afford. These programs should have been done away with a long time ago. The gov has dropped the ball - the entire bill is about 12-18+ months too late. This has been going on for years and it wasn't until Fannie and Freddie fell to get the "Oh Shit!" going. I saw this comming years ago - as I am sure you did too. Lets just cross our fingers and hope it all works out.
Hope all is well! Love!
This is a very complicated program, and as you can see from the comments above, it is not well understood. I do think it is important to make absolutely certain the lender used by your buyers does undertand it and will explain it thoroughly and assure that the buyers know they are borrowing the money - it is not really a true gift. It does have conditions attached.
Arron. I was in the same boat as you were when I first read the info on the tax credit. But then I started to lean towards the favorable camp. I've been involved with several similar "credits" on a local level and they work on most levels. Sure there are situations or people who do not handle it properly and get "taken advantage of" as they put it. I remember one couple who felt like they were "taken advantage of" so they tried to get a local television reporter involved. The reporter called me to see if he could get the facts straight. As soon as he found out that the city had handed out to them $8,000 and they just mismanaged it, the story was over. At that point he was actually excited about reporting on the fact that people could get "free money" by purchasing in that community.
No matter what you or the government does to try to help home buyers, someone, somewhere will think its not enough or will feel "taken advantage of" 4 years from now when they have to pay back $4,500. Of course those are the stories you will hear about. You will never hear about the 99% who managed their tax credit wisely.
Now that the dust has settled a little and information has gotten out on the tax credit/loan, are you more favorable or less favorable to promoting it among buyers? I would like to let buyers know about this benefit, but wonder if all the down sides have been discovered and explained.
Is there a reliable website that explains it?
Sarah Rummage
Sarah@Nashville-Homebuyer.com
I also believe this tax-credit of 7500 was a bad idea. They are not helping us at all.. Only driving us under more debt.. interest free or not! Just another company(Government) I have to worry about paying. I agree that homeowners need money for whatever they need help with whether it be paying off debt or fixing their home.. what we don't need is more debt. I find myself waking up to a country I can't recognize!!