First Time Home Buyer Tax Credit as Down Payment or: Dirty Deeds Done Dirt Cheap
I think this is an important discussion to have so I am going to post this blog a few days in a row to make sure it gets out. There is a lot of confusion concerning the First Time Home Buyer Tax Credit especially now that FHA has approved the funds to be used towards down payment and I am looking to simplify things for you like I have been trying to do with all of my blogs.
This one, I feel is of great importance because I hate to be the one to you know: burst the bubble, but as I hear folks industry wide rejoice at the possibilities of borrowers being able to use their tax credit as a down payment for their new home I would like at least make a few points to the contrary.
1. Premature Jubilation: Everyone right now is scrambling to get the info to you that you can now use your tax credit as a down payment for an FHA loan. The thing they don't realize is that until lenders roll out a program which allows you to use your tax credit in such a way, it makes NO difference whatsoever. So before you get yourself all worked up, we first have to actually have it available for you.
This is most easily show with this example- in July of last year FHA approved funding for the Hope fro Homeowner program in which they were going to refinance people that were having trouble making their mortgage payments. This was the program that was supposed to stabilize our housing market. Instead, no Lender ever even touched the program, and it was ultimately just discontinued in January 2009.
2. There's a Snake in that Grass. Please also understand that they are not just letting you use your money for your down payment. What they want to do is give you a loan that you can in turn pay back. Now, if that suits you, then fine. But understand that this is not the same as the free stimulus that it is meant to be. Ultimately you allowing someone to give you a loan on that money it is going to benefit you, not them. Just understand that it is NOT in your best interest to take free money and turn it into a loan. DON'T LET THE VULTURES GET TO YOUR MONEY!!!
So, I shouldn't take it? I am not saying that it can't help anyone...but use your head, weigh your options, ask more than one person, and always read the fine print. If you don not absolutely NEED to use the money as a down payment...DON'T.
You may not even be thinking about it now, but there are so many good ways to use this money, please do not get ripped off before you even have the chance! Here are just a few examples of what to do:
Pay down the principle balance of your mortgage. In fact, if you get $7500 and put it directly on your principle balance of a $100,000 mortgage, that one payment will cut 4 years and $60,000 in interest payments right off of your mortgage!
Pay down high interest credit cards. Pay that high credit card loan off, use the boost in credit score to get a better credit card at a lower interest rate, let the paid off card sit there open with no balance and enjoy a great credit score for quite some time and save thousand on future mortgages, credit cards, car insurance...you name it.
Invest it. Ok, so maybe the stock market isn't so hot now, but if you can find something safe that it sure to yield, it is a win-win for you my friend. Heck, even a high yielding savings account or a 2-year CD will make you great money.
Take advantage now, because the tax credit goes away if you close on your new home after December 31st, 2009. Happy Home Hunting to you all!
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*This has been an Emily inspired blog.
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