Here’s a tip for first time home buyers entering this property market: when you consider the advantages of an $8,000 tax credit and a cheap real estate market, 2009 looks like a great time to buy a house!
We had a lot of wind yesterday. I looked outside this morning and found a yard full of sticks from the trees, leaves from my neighbor, and I’m noticing that it’s about time to paint the exterior of our home, one of my least favorite jobs. Owning a home can take a lot of time and expense but for many, its drawbacks are far more complicated than sticks, leaves, and paint. It’s economic.
Since the beginning of the recession in late 2007, credit has become more difficult to find and because of that, prospective buyers are finding it much harder to save up for a home. That down payment for a dream home is just so much harder to come by.
When I bought my first home at the age of 26, I didn’t have $28,000 to give to the bank. If it weren’t for government incentives, I would have remained in my cozy 1 bedroom, 1 bathroom apartment.
Fast forward to the present: with Obama’s stimulus package details in place, many people who are now in the same situation as I’d been in the past will have some great news. The great news is that starting in 2009, the government is making it even more attractive to be a homeowner with the revamped first time home buyer tax credit.
The First Time Home Buyer Credit
New in 2009, President Obama has reworked this particular tax credit. What is this all about? Let’s get rid of the government wording and take a look at what’s in it.
1. The amount of the tax credit is the lesser of 10% of the cost of the home or $8,000, if you purchase your house in 2009 but before December 1, 2009. This is an amount deducted from the payment you owe. Here’s the best part: You don’t have to pay it back! Think of it as an $8,000 coupon off the cost of your house.
Now what about those home buyers who bought their house the year before — after April 9, 2008 and before January 1, 2009 to be exact? Well then, they’ll qualify for the old credit, which is the lesser of 10% of their home’s cost or $7,500. There’s a catch though: this credit comes across as something like an interest-free loan, which needs to be repaid over the span of 15 years (or recaptured on a home sale made before 15 years is up). So clearly, we can thank the stimulus plan for sweetening the deal here for 2009 homebuyers.
2. You can apply the credit to any single family home used as a primary residence. In other words, if you occupy the home, it counts. While vacation homes, rental, investment or commercial properties won’t.
3. To be eligible, you’ll need to have a maximum income of $75,000 (or $150,000 with a spouse). If you go over this maximum but earn up to $95,000 (or $170,000 with your spouse), you’ll get a reduced credit. The credit phases out as your income rises, such that above these limits, you’re unfortunately out of luck and won’t be able to qualify.
4. The credit is exclusively for “first time home buyers”. That is, when you buy a home this year, you’ll qualify for the credit only if this is your first home or you haven’t owned a home in at least 3 years from the date of purchase (or for those who built their house, the date you first occupied it).
5. Plan to stay in your home for at least 3 years or you have to pay the $8,000 back!
Sounds good? The government wants you to buy a house and they are willing to pay you to do it.
Is It Time To Buy A House In This Cheap Property Market?
Of course, this incentive shouldn’t be the main reason for you to consider a house purchase. Putting up with the sticks, the leaves, the things that break at the wrong time, the bills, and the strange neighbors are worth it not only because of this stimulus program but also because of the many other benefits that come with home ownership.
If you’ve been thinking of getting your first piece of real estate, then this year may be a really good time to do it — you’ve got a buyer’s market and some of the lowest property prices in recent memory, and you’ll be able to take advantage of the $8,000 coupon to boot! I envy all those people who sat through the real estate market and waited for better prices.
So who’s buying their first house this year?
This guest post was brought to you by Tim Parker from Elementary Finance.
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{ 22 comments… read them below or add one }
Finally, someone else is saying it too!
I’m in Australia, but similar things are happening here too that make buying a house (especially your first one) a very strong investment in 2009. For instance, first home buyers in Australia are eligible for up to $21,000 in government cash until mid year, or $14,000 if they buy a property that is already built.
I’ve got some tips for negotiating house prices on my blog if your readers are interested. I also rant and rave about my mad theories of residential property life cycles too, though I’m not sure how serious anyone will take that!
Get in on property while the other chumps are snoozing I say!
I agree with the general premise, but I would wait until we are at least halfway through 2009 or preferably late 2009 early 2010. We still aren’t in line with historical prices in the overall picture, so some places still have a ways to go before real estate is really cheap. Of course, this depends on where you live, as all real estate is local for the most part.
Also, buying a home isn’t an investment, it’s a place to live. We got the reason for buying a home all mixed up in the last decade or so.
I just started a first time home buyer series to help guide all the people now interested in home ownership. I think the drop in prices, the government’s incentive and the low interest rates will tempt more people to jump in. The second part tomorrow will address if you are even ready to be a homeowner, some people don’t anticipate the annoyances like peeling paint, broken appliances etc.
It could be a good time to buy a home, but a lot of the benefits of this will go to the sellers, instead — the government will be paying them a little extra to dump their property. Since it’s good for the buyers and good for the sellers, it looks like this is going to continue the same old trend: people who don’t own homes are being taxed more to subsidize people who do.
@Sentient Money – Aren’t we still in with historical prices? I’d be interested in looking at that data source, could you please point where that can be found?
I don’t understand why this is only for first time home buyers. The point is to jump start the market, so why limit it this way? The same could be said for the phase out clause for earners. Why not give a credit to everyone or at least raise the limits. There are many parts of the country where earning over $75k is just scraping buy. Why must everything be an attempt at redistributing the wealth. I thought the point of stimulus was to get the market going again and not class warfare. I am sure if the bulk of voters were in the upper class, this would be targeted at them.
JD, I agree wholeheartedly. Plus we have a lot of people who need to sell immediately due to loss of income but want to possibly still own instead of being stuck renting somewhere. These incentives could help them sell and buy if they weren’t limited to first time buyers.
Hey guys,
I been on hiatus for a while, but I’m catching back up with all my favorite blogs. Wanted to share my thoughts that this is a great time to buy real estate. Not only for “first time” home buyers as defined by the bill, but for those looking to move up as well. For move up buyers, the scenario is this: House is in a lower price range so typically the price decline or slow selling is worse as the price goes up. There are less buyers at higher prices and more defaults at higher prices due to the exotic type mortgages and ability for those in high income, but low wealth to leverage themselves. Thus, by selling a house in the 150-200k range, you will see less of a loss than the seller in the 300k-450k range. Thus if you are moving up you will see a better deal when you buy and get a better deal when you sell. Of course, you have to be pretty confident in your ability to earn and your finances in order to do this, but now is the time for move up buying.
All the best to my digerati folks!
joe
Nice article. I happen to be in the same boat in that it is difficult to come up with the down payment. For financial purposes, I would like to purchase a house before December 1, however, my budget is not allowing me to do that. Currently my wife and I are saving between $1000 & $1200 a year to purchase a home, but it will not be until next summer until we will be able to have the full down payment. The ways we are saving and dealing with the current economy is spotlighted on http://www.switchtoriches.com. If you have a moment, please check it out, however, I would not want to drag you away from the wonderful content on ‘The Digerati Lifeâ€. Thanks Guys!
There are many HUD homes in our area (SE) at greatly reduced prices. I mean houses that sold for $120,000+ two years ago now listed for $50,000. They may need a little clean up and work but you will get a buy. Yes, now is the time to buy if you are able.
I think its a shame that if you purchased a home last year and got the first time homebuyers credit you have to pay it back. Now if someone purchases one within months they don’t have to pay it back
My girlfriend and I just closed on our first home today (3/23/09). We live in Portland, Oregon. Home prices are actually affordable in some parts and our market is more stable than many other parts of the country. We felt it was a perfect time to buy, but our motivation for buying was to stop being a renter, not become rich from buying a home. We realize that our purchase may depreciate further for some time to come but we are confident that things will turn around and return to the pre-bubble era when houses appreciated at a stable 3-4% per year.
I would say the additional $8,000 was a huge motivator for us, so I would venture to say it is having a similar impact on many families.
Good luck to all.
This is really good to hear for the US economy as there are many homes (unfortunately) up for foreclosure.
For any Canadians out there, we also have the same tax credit with a value at 5%. It works pretty much that same as in the US.
Don’t forget about the land transfer tax that is also a credit to Canadians.
We still aren’t in line with historical prices in the overall picture, so some places still have a ways to go before real estate is really cheap. Of course, this depends on where you live, as all real estate is local for the most part.
Great job, Tim! I’m putting together a best of RE blogs in my blog this week and I’ll certainly include your useful info here.
In the Dubuque, Iowa market we’ve still got a number of folks, especially the traditional first-time homebuyers, continuing to sit on the sidelines waiting for the magical “bottom” of the market. However, our market is actually back on the increase in terms of average sale price. We are still down from the 2007 highs, but gaining back ahead of where we were in 2006.
People can argue left and right about the ethics of the $8,000 credit (and they do!) but it’s now the law. If it fits your particular situation and you also want to take advantage of the never to be seen again interest rates, ’tis best not to sit idly by while the credit expires at the end of the year, interest rates skyrocket (thanks to the coming inflation), and this particular market contines to appreciate.
i think real estate business should also have some restriction from rising the prices of the land and they should very well know that every one needs home and the land is a gift of Jesus.
the system of broker in real estate business has caused prices to go high and now it is difficult to opt for big property or house.
First time home “buyer” is not correct. It would be more accurate when stated first time home “owner”. My father “willed” part of a house to his family ……since I have never “bought “a house. I don’t qualify……….under the law, I’m not a first time home buyer.
The current tax credit is such a wonderful opportunity for first time home buyers, yet as a mortgage loan officer, I find that people aren’t willing to do what they need to do to get their credit scores in order so they can qualify for a loan and take advantage of this free money. It is so sad to watch people waste this golden opportunity.
I think this is an excellent opportunity for anyone looking to buy a house. It really helps you at the most important time, saving for that initial deposit. I know when I was looking to buy my first home I struggled to get my deposit together.
We’re a property management firm in Alexandria, VA and a lot of our clients are totally going in this direction. Actually, the really brilliant move is that they move out of their existing house, have us rent it for them, and use all this stuff to buy a new one (assuming that they qualify for some of the stuff).
Lots of great tips here for people new to the market. I wonder if your readers might like the other great info on this new site.
Could you take a look and let me know what you think about the info. You’ll see stuff for buyers, realtors and some easy to enter contests.