$8K Tax Credit As Down Payment for your New Home!

Of course, you already knew that you're entitled to an $8,000 federal tax credit, right? That is, if you're a first-time home buyer, or haven't owned a home in the last 3 years. As long as you close on your home by December 1, 2009.

ObamaGift

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, approximately 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 that momentum comes as a direct result of the Obama tax credit.

Don't Miss Out!

If you're planning to close on your home by December 1, you should have found the home and gotten an accepted contract no later than October 15, 2009. Which means you should have started your home search no later than mid-September, 2009. Believe me, the lenders are going to be swamped coming up on December 1.

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. Get your butt out there and start looking!

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.

On May 12, the secretary of Housing & Urban Development stated that the FHA will be allowing 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. Let's face it, 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! My, how things have changed!)

So, just how will this work?

You'll need a short-term bridge loan 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. That could be next year, or if you're really slick, you'll amend your 2008 return, to get the $8K in just a few weeks! (Note: the deadline for claiming your $8K tax credit by amending your 2008 return is July 1, 2009. After that, you'll have to wait till you file your 2009 taxes.)

Now, there are 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 pretty heavy costs - a couple points at closing, and an interest rate 3-5% higher than a first mortgage. The monthly interest on a $8,000 loan, amortized over 30 years, at a 8% interest rate is around $60/month. If you pay 2 points at closing, that's about $160 added to your closing costs.

But, several states (including Ohio - where I practice) have Homebuyer Assistance programs that offer bridge loans that are a lot more attractive. In fact, in Ohio it's an  interest-free loan with no payments whatsoever!

I can't think of another time in history when the deck has been stacked better in favor of the first time homebuyer. Here are three reasons why I say that:

1. To the best of my knowledge, never before has the federal government offered any kind of tax credit incentive 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. Thank you, Uncle!
   
2. Interest rates on 30 year loans are generally under 6% - historic lows! Actually, I've seen 30 year mortgage rates as low as 4-1/2% recently! (June 2009 update: interest rates have headed upward again recently)
   
3. There's more inventory - and thus a better selection of homes available than at any time in recent memory. In most areas of the country, there's at least ten 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 not afraid of a little work, you can buy a foreclosure home that will save you even more money! (Actually, these tend to be known as REOs - Real Estate Owned (by the lender)
   

So, there's never been a better time to buy a home. Homes have never been so affordable, in three ways: 1) low home prices due to high inventories; 2) low monthly payments due to low interest rates; and 3) low cash requirements to close, due to FHA financing, state government incentives, and seller willingness to help with your closing costs. (Not to mention the $8K tax credit!)

And if you're buying a home in Cincinnati, look me up! My real estate practice is busy; but never too busy to help out someone caught up in the excitement of buying a first home!