Idaho Business Review call on little 'ole me!

Yesterday I received a call from Dani Grigg, Staff Writer and Reporter for the Idaho Business Review.  She was asking my opinion on the $8000 tax credit that is now available to first-time home buyers with the recent passage of the "American Recovery and Reinvestment Act."

I was happy to oblige.  But, first, some background:

In 2008, the Bush Administration passed the "Housing and Economic Recovery Act of 2008" which included, among other things, a $7500 tax credit for first-time home buyers.  However, the $7500 was not a tax credit in the true sense of the word, but a no-interest loan to be paid back to the Federal government.  When word got out about how this "loan" was to work, excitement about it fizzled almost over night.

This week, however, President Obama has signed the "American Recovery and Reinvestment Act" which includes an $8000 (or 10% of home value, which ever is LESS) tax credit for first-time home buyers.  All of my research regarding the issue gives me every reason to believe that this is a tax credit in the true sense of the word.

How?

According to CnnMoney.com:

"I will qualify as a first-time home buyer, and I am currently set to get a small tax refund for 2008. Does that mean if I purchased now that I would get an extra $8,000 added on top of my current refund?"

The short answer? Yes, Billings would get back the $8,000 plus what he'd overpaid. The long answer? It depends. Here are three scenarios:

Scenario 1:
Your final tax liability is normally $6,000. You've had taxes withheld from every paycheck and at the end of the year you've paid Uncle Sam $6,000. Since you've already paid him all you owe, you get the entire $8,000 tax credit as a refund check.

Scenario 2:
Your final tax liability is $6,000, but you've overpaid by $1,000 through your payroll withholding. Normally you would get a $1,000 refund check. In this scenario, you get $9,000, the $8,000 credit plus the $1,000 you overpaid.

Scenario 3:
Your final tax liability is $6,000, but you've underpaid through your payroll withholding by $1,000. Normally, you would have to write the IRS a $1,000 check. This time, the first $1,000 of the tax credit pays your bill, and you get the remaining $7,000 as a refund.

To read full article, CLICK HERE.

How do you qualify for this new tax credit?

• Purchase a home any time between Jan 1, 2009 and November 30, 2009.
• Have not owned a home in the previous 3 years.
• Income limitations: $75,000 per year for Single filer, $150,000 per year for Married filers.  (Even though partial credits may be given for individuals and married couples with higher income).
• File it on your tax return.

So, what's my opinion?

I am glad to see that, unlike the previous measure passed, this is REAL money into the pockets of home buyers.  They can choose to do with it what they want: make improvements to their home, re-invest, spend, pay bills, you name it.

And, even though the measure is supposed to make buying a home more attractive, I feel it's impact will be delayed, at best.

1 - Home buyers won't see this money until AFTER they have purchased a home.

2 - It does NOTHING to assist those individuals with down payment or closing costs.

3 - And, with underwriting guidelines getting more strict, 0% down loans are becoming a thing of the past - with the rare exception of USDA and VA loans, and maybe FHA loans with down payment grants.  And, with several states tightening their purse strings, even down payment grants (though not impossible) are tougher to get.

So, my regard toward this measure is luke-warm at best.  I hope that it will create a catalyst of interest in buying a home for those who show interest, but I'll have to wait and see.

Best regards!

Maryellen Garasky
KMG Mortgage Group
Mortgage Broker
(208) 664-3600
(509) 638-3455
www.kmgmortgagegroup.com