The time to act is NOW if you are planning to purchase a home before the $8,000 first time buyer tax credit expires.
One of a Kind Opportunity for 1st Time Buyers:
It is hard to imagine there will ever be a better time buyers to purchase their first home.
Why now?
Government Tax Credit for 1st Time Buyers
The government is giving 1st time buyers $8,000 if they purchase a home that closes by November 30, 2009. If you are counting on the tax credit money, you need to be aware of some important details:
- The tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
- The tax credit does not have to be repaid.
- The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
- The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
- Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
Make sure you check out all the fine print regarding the tax credit.
One of the challenges for some buyers has been coming up with the money for the down payment at closing since the tax credit money is available AFTER closing by amending your 2008 tax return or upon filing your 2009 tax return in a few months.
Missouri Residents
If you live in Missouri, you may be able to take advantage of the MHDC program which will advance up to 6% of the tax credit ($6,750 for properties valued $80,000 or more) at the time of closing to be used for the down payment. As long as the money is paid back by the deadline after receiving the tax credit on your tax return, there is no interest on the tax credit advance.
But time is running out. A lender I know just informed me that the deadline for reserving MHDC advance tax credit funds is October 15. In order to reserve the funds, lenders need an accepted sales contract, 3 years of tax returns and a signed MHDC form by October 15.
Will the tax credit program be extended?
Maybe. But since there is no guarantee, smart buyers will take advantage of the program now rather than risking that it is not extended and missing out on this once in a lifetime opportunity.
Historically Low Interest Rates
Mortgage interest rates are at historically low levels.
The current rates are lower than rates were during the housing boom a few years ago which sparked a hot seller’s market. In order to get the lowest rates during the housing boom, many buyers opted for the riskier adjustable rate mortgages which only guaranteed their low rate for a few years before the rates could go up. Today, the low rates available on the 30 year fixed rate mortgage guarantees that your mortage interest rate will never increase.
Discounted Home Prices
The current buyer’s market has resulted in low prices, giving buyers a chance to buy homes at a deep discount compared to prices just a few years ago.
With fewer buyers purchasing, sellers are motivated to sell their homes. They will often discount the price substantially, agree to pay the buyer’s closing costs, include appliances and a home protection plan (similar to an extended warranty for the plumbing, electric and mechanical systems).
If you are a clearance shopper, and are willing to buy a home that needs some repairs or cosmetic updates, you can definitely find homes at an even deeper discount.
At some point, at least one of today’s advantages for buyers will go away.
Interest rates may go up.
As buyer demand increases, the market will stabilize and buyers won’t be able to get as good deals.
And the first time buyer tax credit will be long gone.
Time Line for Home Purchase Closings
It takes time to close a home purchase. In the St. Louis area, home purchases normally close 4-5 weeks after a purchase contract is accepted. It is possible to close on a purchase faster, but time is needed for:
- Appraisal
- Loan underwriting and commitment
- Buyer inspections, negotiations over what the seller will repair and time to get the repairs completed
- Municipal inspections and repairs
- Title work
- Survey
With the massive influx of accepted contracts arriving on the desks of title company, lenders, inspectors and appraisers, contract time frames will need to allow a little extra time to get everything done. Since there will be no exceptions on the tax credit deadline, unexpected problems that cause a home closing to be delayed by just a day or two could result in an $8,000 loss if the closing is planned for the end of November.
Buyers should plan to close on their new purchase no later than November 15, 2009 if they are eligible for the tax credit. When you add in the 4-6 weeks between contract acceptance and closing, that means the time to make an offer on a house is NOW. Anyone that waits until the end of October to make an offer is taking a big risk of missing out on the tax credit.
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