First Time Home Buyers Dodge a Bullet

As you may be aware, for the last two years, first time home buyers have been given a tax credit, which significantly aided their first home purchase. Each year’s program was better than that of the previous year. In 2008, the first time buyer was given a tax credit of $7,500; however, that credit had to be paid back. In 2009, the credit increased to $8,000 and did not include the requirement to repay it, as long as the buyers stayed in their new home for at least three years.

If Congress hadn’t acted, the home buyer tax credit would have expired on November 30, so by the time you read this, it would have been over. However, as I write this, a new bill has just passed and although we do not yet have complete details, the changes we do know are downright exciting.

First, the less favorable portion of the new bill is that it only extends the credit through April of 2010, so we only have five months to take advantage of the program. The good news is that this is the date by which you must have a home under agreement—you will be given until June 30 to get the purchase closed. That is a tremendous improvement over the previous bill, in that it required your purchase to be closed by November 30, so effectively your deadline to get something under agreement would have been October 15.

As the November 30 cutoff grew closer, there were some pretty frantic buyers. Imagine the repercussions for buyers, sellers and agents had there been no extension of the program and the parties were unable to get the sale closed on time. People generally don’t understand how many phases are involved in a real estate transaction. Granted, negotiations can be time-consuming, but that is certainly not the end; it is really just the beginning. The mortgage process is where this whole effort could have bogged down. The mortgage industry has finite resources with which to work and a staff of a certain size can only handle so many transactions before personnel limitations begin to strain against the calendar. And that doesn’t take into consideration the limited capacity of the appraisal industry, which would have been required to work overtime to make this happen. Then, once the mortgage and valuation portion of the process is completed comes a whole new series of problems as the settlement company endeavors to cope with the same sort of difficulties experienced by the mortgage folks.

Needless to say, there were a rather large number of people breathing a collective sigh of relief when the extension was finally signed by the president. Those who had been racing to close their deal by the November 30 deadline could ease up, and those who hadn’t yet found their dream home now have another five months in which to achieve the task.

So let’s have some more good news. Número uno, the first time buyer’s tax credit will remain at $8,000 and can be taken on either the 2009 or 2010 tax return. The really great news is that the program has been expanded to include existing home owners who are buying a new principal residence. Their tax credit is only $6,500, but that is $6,500 more than they were eligible for under the last program.

Number two: Under the previous program, if a single tax filer had income over $95,000 or a joint filer’s income exceeded $170,000, the credit was completely phased out. The new version increases those limits to $145,000 and $245,000 respectively. This change is huge, in that it extends the program to the vast majority of potential home buyers.

There is little question but that this program has been a fabulous shot in the arm for the economy; housing is the primary industry to pull us out of this mess. Just think about how many other industries depend upon real estate for their support and success, including the home improvement, carpet, window, door, paint, appliance and home furnishing industries, just to name a few. It mushrooms from there when you consider what other industries are involved in the components to manufacture appliances or windows and furniture. So now we’re talking about lumber, manufactured parts, metals, chemicals and added employment. The benefits of a strong housing industry are huge, and this tax credit program is a major component in securing a strong and vibrant real estate industry.

It strikes me that this is a wonderful time to buy a home. Whether you’re buying for the first time, moving up or empty nesting, this may be the only time in our lifetimes when this type of assistance will be available. Take advantage of it!

For more information, go to the IRS website and take a look: www.irs.gov/newsroom/article/0,,id=204671,00.html

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