There has been a lot of information circulating about the Federal Government's Housing Stimulus Bill that passed this past summer. The bill, which focuses on aiding homeowners facing foreclosure, attempts to address a wide range of issues in the housing market. A couple of provisions of the bill are of particular interest to first-time homebuyers.
Provision One - The Upside: First-time Buyers get a break
Anyone who qualifies as a first-time homebuyer and buys a primary residence between now and July 1, 2009 will be eligible for a tax credit of up to $7,500 or 10% of the purchase price, whichever is lower. This is an attractive benefit because a tax "credit" is deducted directly from the amount of tax that is owed in a given year. For example, if your tax filing results in an "Additional Due" amount of $500 to be paid to the IRS, the $7,500 credit will offset that amount, and instead, will result in a $7,000 tax refund. Likewise, suppose you are due a tax refund of $1,500. The credit would be added to that amount, and instead, would result in a $9,000 refund.
It must be noted that there is a catch to this tax credit. It is not "free" money, and in fact, amounts to an interest-free loan. Borrowers will have to pay it back over a period of fifteen years (1/15th each year, or $500/yr in this example). The method of payback will be applied in the same manner as the original credit, i.e., $500 will be added and offset against future tax refunds or payments for the next fifteen years. Additionally, there are income limits that could affect the amount of tax credit a homebuyer is eligible to receive. A single person would have an income limit of $75,000 and a married couple filing jointly would have a limit of $150,000. The credit will begin phasing out at income levels in excess of the amounts stated. Still, this credit could greatly help first-time homebuyers with purchasing appliances and furniture, or remodeling upon moving into the home.
Provision Two - The Downside: Seller-funded Downpayment Assistance is History
One way to look at it is that Uncle Sam Giveth, then Uncle Sam Taketh Away! Another provision of the bill is that Sellers are no longer allowed to provide down payment assistance to the buyer. This includes private homeowners as well as new homebuilders. However, gift funds are still allowed to be given to the buyer by family members, churches, employers, non-profits and other similar sources.
Fortunately, there are other resources available to navigate around the down payment dilemma, such as local and state housing agencies and programs such as NCHFA and House Charlotte, and national agencies such as NACA. Believe it or not, even in today's environment, 100% financing, below-market interest rates and even down payment assistance is still available. There are even special financing products for those employed in designated occupations. Seek out a competent real estate professional who has experience, knowledge and expertise working with these agencies and programs.
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