Time is Running Out!

Unless you’ve been in a coma for the last year, you probably know something about the federal government’s program to stimulate housing among first-time home buyers. In 2008, there was a tax credit which first-timers could take advantage of, but it had to be repaid. However, in 2009, first-time buyers were given a gift—a tax credit of up to $8,000 (10 percent of the value of the residence or $8,000, whichever is less), and as long as they stay in the property for three years, there is no requirement to repay the money. It’s all yours, forever!

The issue we are facing right now is that the time to take advantage of the program is just about over. The government has said that you must purchase and close on the residence BEFORE December 1, 2009. I realize that seems like plenty of time, but if you work backward from that date, perhaps you can understand why it is crunch time. If it takes 30 to 45 days to close a sale following the signing of a purchase agreement, then that would require you to find your dream home and have it under agreement by October 15. So if you are reading this on our publication date, you are left with just about 45 days to find your dream home.

This timeline does not allow for any trouble along the way, nor does it factor in the possibility that a great groundswell of those realizing that time is nearly up could clog up the system. Great numbers of people in need of mortgage origination and processing, appraisal services, home inspections and settlement services could really bog things down.

I don’t think it is possible to overstate the advantage of this program for anyone lucky enough to meet the first-time buyer criteria. I believe the number one reason that most folks are unable to take advantage of home ownership is their inability to save a down payment. Well, here you go—the taxpayers of the United States are all chipping in to help you with that. You have this tremendous incentive, interest rates are still at historic low levels and the FHA and PHFA (the PA Housing Finance Agency) have low down payment programs available.

Let’s look at an example of how sweet this really is: Suppose you are interested in a home you’ve found for $150,000. FHA financing will allow you to purchase this property with just $5,250 down. You may be saying to yourself, “Sure, Straub, but I’ve heard I will still need thousands of dollars for closing costs.” So true, but what you may not know is that the FHA will allow your sellers to pay up to six percent of the price of the home toward those costs, or in this case $9,000. In most instances, that will be sufficient to handle all of your costs.

This scenario scores you a monthly principle and interest payment of $822, even given your small equity position in the property. Now you may be thinking, “That’s just great, but I still need $5,250.” Well, let’s reflect a moment; this purchase qualifies for the entire $8,000 government gift. If you don’t want to wait until you file your 2009 tax return to receive your money, the government will allow you to take the tax credit on your 2008 return. Already filed it? File an electronic amended return, and you will receive your cash pretty quickly.

I still hear some of you grumbling out there—you’re saying you don’t have the $5,250 to start with! Here’s the solution. If you finance your mortgage through the PHFA, the government has allowed them to advance you $5,000 of your $8,000 at the time of settlement. This $5,000 is given to you as a short-term loan until your federal money arrives, then it is hoped that you will pay off the $5,000 you borrowed from the state. You will still have $3,000 remaining to make improvements or to go out to dinner at a really expensive restaurant. It’s your money.

I know that many of you are wishing you were first-time buyers, but expect that you are disqualified because although you don’t now own a home, you once did. It probably won’t surprise you to learn that in government parlance, the term ‘first-time buyer’ doesn’t actually mean that this is the first time you’ve purchased a home. The government definition is anyone who hasn’t owned a home in the last three years, so maybe you do qualify after all.

If you’re confused, that’s okay—I just hope I opened your mind to the possibilities. If you’re interested and wonder if this program will work for you, don’t delay. Talk to your favorite realtor and see if it fits. And whatever happens, good luck!

Gary Straub is an independent real estate consultant who has been a real estate professional for 36 years.