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
Certainly, there are many homeowners who are in trouble, likely to lose their homes to foreclosure or suffer significant loss to the value of their homes. But there are many millions of homeowners who are riding out stormy seas with some already coming out on the other side in improved shape. Those people are likely to help lead the recovery effort provided that Congress and the Obama administration back away from trillions of dollars in promised new spending.
Theoretically, a short sell (short sale) should be final, a transaction whereby the lender forgives the loan deficiency, choosing to swallow a comparatively small loss up front, rather then a sizable loss that would probably be incurred had the house passed through foreclosure.
Earlier this year, mortgage interest rates dropped below 5% for a brief period of time, setting off an avalanche of refinancing while encouraging fence sitting home buyers to jump into the market. That move helped to stabilize the housing market in some areas, even forcing home prices to rise a bit. Unfortunately, the drop to near historic lows on a thirty-year fixed rate mortgage didn’t last, eventually sending rates above six percent for a brief time.
