Subscribe Feed (RSS)April 30, 2010 is a date circled in red on the calendars of some home shoppers. That is the last day when prospective home buyers can enter into an agreement to purchase a home in order to enjoy an extra special benefit: a federal home buyer tax credit of as much as $8000.
Tax Credit
Though home buyers still have until the end of June to close on their homes, a binding sales contract must be in hand on April 30 in order to be eligible for the credit. That credit has limitations including a salary cap of $125,000 for single home buyers or $225,000 for married couples filing joint returns.
Even if you already own a home, you may qualify for a $6500 tax credit. In either case the value of your home, which is to be your primary residence, cannot be above $800,000.
Credit Advice
So, are you ready to take the plunge? Not so fast! At least that is the opinion of some credit counselors who are concerned that potential buyers could be pulled into the market thanks to lower home prices and generous tax credit.
“Many people are able to benefit from this tax credit, but that does not always mean buying is a good option for them,” said Lindsay Alston, a credit counselor with CESI Debt Solutions. “You have to look closely at your income to see if the numbers work.”
Alston went on to say that buyers should make sure that their annual costs including mortgage, insurance, association fees, and property taxes should not exceed more than 30 percent of your gross income. That means if you make $40,000 annually than your home related costs should be no higher than $12,000.
Extra Costs
Lots of home buyers fail to consider other expenses related to owning a home including lawn upkeep; replacement of appliances; roofing and gutters; windows and doors; and other maintenance expenses.
“The tax credit is a great incentive for people who are financially in good shape and planning to buy a new home anyway,” said Alston. “But if you don’t think you can make the numbers work without it, you should probably wait and continue to save, even if it means missing out on the tax credit.”
If you aren’t certain that you should buy a home, ask an objective party such as a financial adviser whether your should buy now or pass on the tax credit. Friends, family members, real estate agents and mortgage brokers may encourage you to jump in, but if you aren’t adequately capitalized you can find yourself battling to keep up down the road.
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Tags: credit counselor, debt, financial adviser, home buy, mortgage, Property Taxes, tax credit
Lest anyone think that the tax credit will vanish for good, Congress is already considering a number of different options to help keep it going. Now that the economy is showing signs of rebirth, legislators are carefully examining the best way to stimulate housing without wrecking momentum. Indeed, while each credit helps homeowners, those funds are added to the national debt which has mushroomed by $1.4 trillion this year alone.
The news was better than expected but not too surprising given that home prices in most markets are much lower than they were from a year ago. Include the federal tax credit for first time home buyers in the mix and the response reflects consumers shopping for values.
Things have changed down through the years, so much so, that in many markets buyers only need to put down three to five percent and they can get loans for 40, even 50 years. Credit the high cost of buying a home in some markets for making it difficult for all but the wealthiest home buyers to purchase a home.
