$8,000 – Maybe That Is Not Such A Bad Idea

On the eve of potentially sweeping reform to the foreclosure rules I have had some time to think about the $8,000 first time homebuyer tax credit that is part of the new economic stimulus package.

First of all you have to give credit to President Obama who in a very short period of time actually got something passed.  It might not be all of what he wanted, but it is something and in this financial crisis something is better than nothing. 

I have had numerous conversations over the past few weeks about the proposed credits to first time homebuyers and I was not a big fan as I did not think it would do anything to get them into the market to buy a home.  I have had an opportunity to rethink that position and I have come to the conclusion that the $8,000 tax credit that NEVER has to be repaid is a good proposal.  True there are some strings attached, but did you expect there would not be? 

The definition of a first time homebuyer is one that has not owned a home in the last three years.  To qualify for the "NEVER have to pay it back" part you need to hold on to the home for three years.  The good news is as long as the purchase price of your owner occupied home is $80,000 or more and you do not go over the qualifying income threshold you get the full $8,000 tax credit right away.  Although I think the holding period is overboard and restrictive I can live with it since a first time homebuyer gets a free $8,000 gift from the government.

I have had conversations with first time homebuyers and they seem energetic about purchasing a home prior to the December 1^st deadline.  What we need now is a lending system that is willing to lend money!

The banking system and their lending qualification requirements are the key to getting us back on track.  I have blogged in the past about their more restrictive qualifications and I do not have any issue with them.  However, lenders simply must be willing to lend to someone who has good credit, a 20% down payment and verifiable income.  If they are unwilling then there is no amount of economic stimulus that will work.