Is the new temporary $7500 tax credit good for your customer? First you have to know who qualifies and how it works. Then your client can decide if it is in their best interest to take the Tax Credit.
Buyers must be first-time home buyers which also includes anyone who has not owned a home in the past three years. They cannot earn more than $150,000 for joint filers and $75,000 for individuals. It is not available for non-resident aliens.
How does it work? The credit is the lesser of 10% of the purchase price or $7,500. Since there are not many homes that sell at or under $75,000 most families can take the full benefit of $7,500. People who purchase a home between April 9, 2008, and June 30, 2009, qualify for the tax credit. This is a dollar for dollar deduction against your tax bill. This means a couple who bought a home, and might have had to pay $3,500 in taxes would now be able to receive a tax credit and a refund of $3,500. If they were getting a refund of $1,000 before, now could get a refund of $8,500. Sounds good on the surface.
The couple would have to pay back this money over 15 years at $500 per year. There are ways to make this sound good but in essence it is a $7500 interest free loan from the government. If you sell the house before the 15 years are up, the balance of the home is expected to be paid back. If the home value is not there, it is to be forgiven. Also, if you die, it is to be forgiven. In any case, the buyer gets no benefit from this Tax Credit at closing.
I think as always, it is an individual choice and should be considered on a case by case basis. Some people could do very well with this while it can really cause serious problems with others. Always refer your client to an experienced Mortgage Banker who will work out the numbers, disclose the facts and help the client make an informed decision.
For more indepth information about the Tax Credit or any mortgage question, please do not hesitate to call or write to me.