So you think you outsmarted the crowd because you skipped the $8,000 first time homebuyers tax credit

Real Estate Agent with RE/MAX Alliance - Louisville REALTOR-Luxury Homes


There has been a lot of speculation recently regarding the proposed continuation of or even extension of the $8000 tax credit.  In a recent post, one author even hypothesized that by foregoing the tax credit, homebuyers could actually save more money.  The rationale being that demand would sharply drop off and prices would follow.  This may be true in her area, but it is not true in Louisville.  

Jeff Belonger, one of the nation's top FHA experts and former Louisville resident, also disagrees.  In his detailed response below, he captures the problems with this reasoning.  In short, you are throwing away a sure thing for the hope of something better.  Ever heard the one about a Bird in Hand?  The risk certainly does not outweigh the meager rewards.

While you read Jeff's post, consider that the average home price in Louisville is around $150,000.  A $20,000 drop in prices would be more than 13% in lost value.  With the exception of select neighborhoods, Louisville home values didn't drop 13% at the lowest point in the market and aren't about to do so on December 1st.

Please remember, real estate is local.  Find an area expert who knows the market you are in and listen to him or her.  National news and out of area bloggers will only cost you money.

**Remember: Time is running out.



Original content by Jeff Belonger



smarter than the average bear

How smart do you think you are?  Do you think you can outsmart people, just because you read some good advice, yet it failed to share with you the opposite side of things. That has been one of my biggest fears and pet peeves when it comes to blogging. And another?  That many blogs are opinions, not facts, yet they sound like facts.

Janet Guilbault wrote this interesting post that makes a good point : Outsmart the crowd : Skip the $8,000 tax credit & wait to buy - She talks about skipping the first time homebuyers tax credit in hopes that you could get the house of your choice for $20,000 less. She adds that winter is around the corner and the market should be slower, which could get you that price reduction. Again, some good food for thought, yet forgetting some very key points to her opinion. And just for the fact, in my opinion, this is a risk. Are you willing to chance your $8,000 tax credit?  Let's look at this further....








two sides to every story

Again, Janet states that you should skip the $8,000 tax credit, because you could get a better deal on a house in the winter months.  And because there wouldn't be as many buyers in the market, because of the first time homebuyers tax credit of $8,000 would not be available. Overall, I feel really strongly against this kind of advice.

Here are my thoughts on why you should be careful of such advice :

  • Reduced property values - You got the house for $20,000 cheaper, and based on a $250,000 mortgage, that would save you $120 a month. So you didn't get the $8,000 tax credit. It would take you 5.5 years to save that tax credit with your monthly savings.
  • Interest Rates - Do you have a crystal ball?  Do you know where mortgage rates will be in December? You get that new house for $230,000, yet the rate increased .375 of a percent. Your new savings will now only be $64 a month. That means that it would take you 10.4 years to save that $8,000.
  • Real Estate Market - Do you know how appraisals truly work?  Do you understand that an appraisal is an opinion from a certified appraiser?  Not one house is the same and in many cases, not all appraisals of that same house are the same. I could give you many examples of specific homes in recent months, having a few different appraisals that could vary from $3,000 to $20,000 in value.
  • $8,000 tax credit in your pocket - You now have the $8,000 in your pocket 2 months after settlement. What could you do with that monies?

- Use the money to fix up the house.

- Use the money to pay off some credit cards, which could save you more money in the long run.

- Possibly pay back some debt to those that helped you get into your new home.

- Save for any housing emergencies that could happen at any moment.

  • Waiting for a possible increase to the tax credit, possibly a $15,000 tax credit - So you take Janet's advice and say to yourself, maybe they will extend the tax credit or raise it to $15,000. Ouch, in my opinion, that is a huge risk. If you are actually in the market now, why play the market? If you come across your home now, but it now, don't roll the dice.
  • Real Estate Market - Each real estate market is different. In my opinion, even the experts can't truly predict what the housing market will do. Some have said that we have hit bottom. Some say it could be a year. But then again, in some markets, prices have increased already. In Janet's post and in a few of the comments, some people have stated that there will be a correction to this. Again, it's an opinion, not a fact.
  • $20,000 reduced value - You don't physically see this money. You don't get 20k in hand. And what happens if the house was over-priced to begin with? What happens if values don't increase in 5 years? The only equity is that equity that you build yourself. In 5 years, you knocked your principal balance down by $16,000.




Conclusion :  Janet ended her post with this ... "If you save $20,000 on your house, do you care if you sacrifice an $8000 tax credit? Probably not. (But don't expect anyone in the real estate industry to talk about this until AFTER the rebate ends)."

Well, I will still be talking about it, no matter if the tax credit continues or ends. I am all about educating the consumer, sharing both perspectives on real estate and mortgage issues. And yes, I would care if I sacrificed the tax credit, especially based on what I stated above. Especially if interest rates went up a half of a percent by December. In my opinion, I can go to Vegas and or Atlantic City to gamble. But why gamble on free money, money that you don't have to pay back. We are in a very tight economy now. I don't think many of you have money to gamble with as you did several years ago. (I don't want to get into the statement of free money, because yes, as tax payers, we are paying for that)

Lastly, excellent time for first time homebuyers. Home values are lowest in the last 5 years, with interests being close to the lowest in several decades, and $8,000 given to you if you qualify.




IMPORTANT REMINDER – The $8,000 first time homebuyers tax credit ends on November 30th, 2009



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Copyright © 2009 by Jeff Belonger of Infinity Home Mortgage Company, Inc

Comments (11)

Sybil Campbell
Fernandina Beach, FL
Referral Agent Amelia Island Florida

I totally agree with you and the old saying about a bird in the hand definitely applies in this situation.  I especially liked the way you worked the numbers explaining how long it would take to "save" the $8,000.

Sep 08, 2009 03:49 PM
Ryan Shaughnessy
PREA Signature Realty - - Saint Louis, MO
Broker/Attorney - Your Lafayette Square Real Estate Partner

Nice post - I agree.  There are too many people who try to beat the market and end up getting beat by the market.  I don't see the drastic drop that would need to make passing on the $8k tax credit a good approach.

Sep 08, 2009 03:51 PM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Erik.... first off, thanks for reblogging this and for such a polite introduction & for the kind words. Local market or not, I think it's poor advice. Even if you think your local market will lose some more in value... how can you throw away very good rates now, low prices, and $8,000. To me, that's a huge risk. And you painted this very clearly in your intro.  thanks

jeff belonger

Sep 08, 2009 03:55 PM
Erik Hitzelberger
RE/MAX Alliance - Louisville REALTOR-Luxury Homes - Louisville, KY
Louisville - Middletown Real Estate

Sybil - I really believe most people are buying homes because they want to and because they finally have enough confidence in the market to proceed.  The interest rates, inventory, price, and tax credits are all bonuses.  Rewards for being in the right place at the right time and have the courage and foresight to move forward.  Waiting for a few months on the hope that thwy will save a few extra dollars a month is 1) contrary to all of the reasons for proceeding and 2) is risking $8000.

Ryan - I agree 100%.  I cannot fathom a $20,000 price decline in the next few months caused by oversupply.  In my area, things never were that drastic and sure as heck aren't now.


Sep 08, 2009 04:03 PM
Erik Hitzelberger
RE/MAX Alliance - Louisville REALTOR-Luxury Homes - Louisville, KY
Louisville - Middletown Real Estate

Jeff - Thank you for the effort you put into your post.  I was more than a little surprised when I read the original post a few days ago.  I want my clients to get the best deal possible.  This involves a careful analysis of the facts at hand.  It does not involve abandoning reasoning while searching for a pot o'gold at the end of the rainbow.   

Sep 08, 2009 04:08 PM
Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Hun... - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

I'm definately with Sibil and everyone else on this "a bird in the hand".  I mean much better do you need home prices and rates to be before you get off the pot?

Sep 08, 2009 04:24 PM
John Cannata
214-728-0449 - Frisco, TX
Texas Home Mortgage - Purchase or Refinance

This was a good post. He made many good points, so a well deserved feature. Fact is that you just dont know what will happen and the simple math should help people make the right decision. Good reblog.

Sep 09, 2009 08:02 AM
Erik Hitzelberger
RE/MAX Alliance - Louisville REALTOR-Luxury Homes - Louisville, KY
Louisville - Middletown Real Estate

John - The math in Louisville says buy now.  If you are waiting solely to get a better deal, it isn't going to happen.

Nick - Well said!

Sep 09, 2009 11:20 AM
Jen Bowman
Keller Williams on the Water - Holmes Beach, FL
Realtor - Anna Maria Island & Bradenton FL

Erik, I agree. Who knows what the future will bring? At least first time home buyers can bank on the $8000 now. 

Sep 10, 2009 03:46 PM
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

ALL real estate IS LOCAL and that is a good reminder!  What works in Jeff's market may not work in Janet's market, may not be applicable to Erik or Renee's market!

Sep 11, 2009 01:14 AM
Brian Griffis
Realty Choice - Springfield, MO

Thanks for the reminder Erik.  People need to get their free money while they can.  And remember, you have to close  before Dec 1, so there is less time than you think.

Sep 11, 2009 10:23 AM