Bailout - First time home buyers... (interest rate, 401k, 2010, California)

[wankel7]

Bailout bill's perks cover more than foreclosures - The Denver Post


Break for first-time buyers: If you are buying a home for the first time, and it is your primary residence, you are eligible for a modified federal tax credit of $7,500 or 10 percent of the purchase price, whichever is smaller. The amount is paid back via taxes over the next 15 years.

More...

First-time home buyers who purchase a primary residence between April 9, 2008, and July 1, 2009, will be eligible for a tax credit of $7,500 or 10% of the purchase price, whichever is less.
On the surface, this looks like a pretty good deal. A tax credit is a dollar-for-dollar reduction in your tax bill, which makes it more valuable than a deduction. And this tax credit is refundable, which means you'll qualify even if your federal tax bill is less than $7,500, says Bob Scharin, senior tax analyst for Thomson Reuters. For example, a first-time home buyer who owes the IRS $2,000 would receive a refund of $5,500.
But this provision includes a lot of caveats, including:
•You'll have to pay it back. While this break has been labeled a tax credit, it's really an interest-free loan. Home buyers who claim the credit will be required to pay it back in equal installments over 15 years, starting in the second year after the home is purchased. If you buy a house this year and claim a $7,500 credit on your 2008 tax return, you'll have to pay an additional $500 a year in taxes for 15 years, starting in 2010.
If you sell your house before the 15 years has elapsed, you'll have to repay the entire balance, unless you sell at a loss.
•If your income exceeds certain thresholds, you're ineligible for the credit. The tax credit phases out for single taxpayers with adjusted gross income of $75,000 to $95,000. For married couples who file jointly, the phaseout is $150,000 to $170,000.


Assuming this thing is signed into law...

Is this really worth using?

[sneezecake]

I don't see why not? I think my situation is similar to many first-time home buyers in that I am half of a young couple and we are stretching to buy our first home...not stretching in terms of what we can afford, but stretching to come up with 20% down.

We're also buying a house that is large and we can plan to live in for quite some time...not a starter home. I think this could be dangerous for people buying a "starter home" and planning to move in 2 years.

We have excellent credit and jobs that cover the payments easily enough.

However, coming up with 20% down leaves us scraping the bottom of the barrel in terms of having money to furnish the house the way we'd like unless we dip into savings or 401k

Thus, the $7500 will be used for furniture, upgrades, or just to re-fuel our operating accounts, and our savings and income plan has us have MORE than enough 2 years from now to start paying back $500/year.

Not to mention, $500 today is more valuable than $500 will be in 15 years.

The money will come in very handy in my situation, but I can see how it would be potentially risky for others.

[wankel7]

Yeah, that is a good point if you punch out in less than two years. However, I think there was something about if you take a loss on the house you owe less money or something like that.

I am assuming without appreciation and bailing inside two years you are taking a loss.

Looks like Bush signed this into law today! Wow, this actually increases my excitement about buying a house

[rcarrillo]

Its an interest free "loan"... so why not take advantage of it? Just don't use it to buy a new plansma TV or take a vacation. Use it to pay down your debts, increase savings or have an emergency fund.

Even if you did not have to pay it back, use your money wisely. But you will have to pay it back so be extra careful.

[grannynancy]

My kids closed on their first home - somethey they could actually afford on APRIL 4th. They will not qualify and I am pretty ticked off if my hard earned tax dollars go to someone else's kids for the same thing, that is a pretty big tax credit.. My daughter and SIL have worked for everything they ever got and earn less than 50K between the two of them and bought an affordable [100k] house in a decent [good schools, just working class] neighborhood - with a mortgage they knew they could afford. Oh, they have old hand me down furniture and plan to keep it that way until they can pay cash for new stuff.

So somebody with a very good income [I am sorry but a single person earning 75-95k or a married couple earning 150 to 170K has NO, NONE, NADA business buying a house if they need help from the government!] gets help but kids [oh, yes, he is one of those highly paid schoolteachers, so valued by our society] scrimping and saving do not. BAH HUMBUG.

[sheenie2000]

You know, those of us who did the right thing and are working hard, have money for a down payment, gread credit, we should be able to get really really low interest rates. How bout a 3% fixed interest rate for us. Better yet how bout 1% or 2%.

We deserve something too.

[k374]

this credit phases out after $75k, given current prices in Southern California I hope anyone who is attempting to buy has an income wayyyy north of that!

[phantoms]

Originally Posted by grannynancy

So somebody with a very good income [I am sorry but a single person earning 75-95k or a married couple earning 150 to 170K has NO, NONE, NADA business buying a house if they need help from the government!] gets help but kids [oh, yes, he is one of those highly paid schoolteachers, so valued by our society] scrimping and saving do not. BAH HUMBUG.

I'm sorry your kids closed to soon to take the tax free loan. BTW, they also could have looked into VA/FHA foreclosures at homesales.gov . Police Officers and School Teachers get huge breaks on foreclosed homes. In fact, I think a PO can get a 50% break on the listed value. Not sure if a teacher gets just as big a break.

[texdav]

Frankly I think it comes down to the fact that people don't save for the serious things in life. My wife and I saved five years to get 20% down. I thinkithat is one reason we are in the trouble now;things come too easy and young people expect to be financed. In the end it makes for more people that are financially unsound as they never learn anyhtng ; first mom and dad take care of you then uncle sam.What they don't realise is that that uncle sam is some other person paying for their wants.

[Jaded]

Originally Posted by grannynancy

My kids closed on their first home - somethey they could actually afford on APRIL 4th. They will not qualify and I am pretty ticked off if my hard earned tax dollars go to someone else's kids for the same thing, that is a pretty big tax credit.. My daughter and SIL have worked for everything they ever got and earn less than 50K between the two of them and bought an affordable [100k] house in a decent [good schools, just working class] neighborhood - with a mortgage they knew they could afford. Oh, they have old hand me down furniture and plan to keep it that way until they can pay cash for new stuff.

So somebody with a very good income [I am sorry but a single person earning 75-95k or a married couple earning 150 to 170K has NO, NONE, NADA business buying a house if they need help from the government!] gets help but kids [oh, yes, he is one of those highly paid schoolteachers, so valued by our society] scrimping and saving do not. BAH HUMBUG.

I say use the credit, absolutely!

Granny, take it easy...your kids and others will not be able to take advantage of the tax credit who closed before April 9th. There are tons of people who won't get this credit...but you're forgetting something in your rant; those who receive it must pay it back. So actually, your kids shouldn't be too upset and neither should you as they now have no "loan" to accept nor pay back!

The Government isn't "helping" first-time buyers by offering the credit, it's trying to stimulate the housing market by offering this "carrot" to entice people to start buying homes again. IMO it's a good idea.

Also, the credit phases out for the incomes you've listed above...it's not a reward for high income earners.