First-Time Homebuyers Reap Tax Benefits

In the eyes of President Obama and the Federal Government, one of the keys to simultaneously revive the housing market and stimulate the economy is to encourage first-time homebuyers. Towards this end, the government has now approved two tax benefits, designed to make it easier and more affordable for this segment to wade into the market.

“The first (2008) credit could be as high as $7,500 for a couple filing joint tax returns, and the second tops out at $8,000. Both are available to qualified homebuyers who have not owned a home within three years of the following purchase dates,” and who earn below a certain income threshold that varies by filing status. The 2008 credit is “structured as a long-term interest-free loan,” whereas the 2009 credit is realized in the form of savings from tax deductability. With both programs, participants are required to remain in the house for a certain period of time in order to avoid penalties. This stipulation is intended to deter speculators.

Furthermore, the Federal Housing Administration recently announced that first-time homebuyers expecting such a tax credit will be “eligible for bridge loans or cash advances up to $8,000 that they can use for the down payment, closing costs or other loan expenses pending receipt of their tax credit check from the IRS.” In this way, such homebuyers can make use of the tax credit before they have actually received a check from the government.

There is already some (indirect) evidence that these programs are working. In the first quarter of 2009, first-time homebuyers accounted for a whopping 455,000 sales. “One housing-market watcher believes first-time buyers soon will account for half of the area’s home sales.” Obviously, there are other compelling factors for purchasing your first home now, besides government tax credit. According to a recent survey, “86 per cent of potential first-time buyers say low interest rates make them more likely to purchase a home and 81 per cent say lower housing prices are a factor.”

Experts agree that first-time homebuyers are especially susceptible to misunderstandings in the mortgage process. Accordingly, “Susan Keating, president of the National Foundation for Credit Counseling, thinks that all first-time home buyers, along with anyone else taking on a non-traditional mortgage, should be required to take a financial counseling class.” The goal is to make sure consumers understand what their getting into, in order to minimize surprises and even to save money in the process.