By Paul A. Smith, TCAJoB
Only July 30, President Bush signed into law a massive housing bill designed to stabilize failing housing markets across the country. The highlight of the legislation is a $7,500 tax credit for “first-time homebuyers,” who purchase a home between April 9, 2008 and close before July 1, 2008. The measure also includes approximately $15 billion in tax cuts and significant expansion of the low-income housing credit.
But proponents are lauding the 47,5000 credit the loudest because they believe it will move a large amount of potential buyers off the fence about purchasing a home; and those people who felt they couldn’t afford a home before will now consider moving forward because of the credit.
The idea is to create a “trickle-up effect” to jump start the real estate economy by giving incentive for the surplus of renters to take the plunge and buy a house. Sellers then would have buyers and be able to move on and begin purchasing the surplus of unsold high end and new construction homes.
Supporters also believe the bill will eventually lighten the load on banks with a large inventory of foreclosure homes by providing more qualified homebuyers. Naysayers stop short of calling the $7,500 a true credit because of the fact that the amount received would have to be repaid over 15 years, making it in essence a no-interest loan. That calculates out to a $500 minimum payment added to the mortgage and taxes due each year. According to analysts, the average first-time homebuyer will save at most a few hundred dollars a year.
The tax credit isn’t going to help people qualify for a home loan. the banks are still setting the guidelines, and unless the buyer can qualify, the tax credit doesn’t apply. the other stumbling block to the credit is the fact that taxpayers don’t get the money up front. It can only be claimed after a homebuyer files his or her taxes, which most likely does not coincide when they are buying a house and need the cash.
The bill is aimed at low- to middle-income tax payers. High-income earners aren’t eligible for the tax credit, which is worth the smaller of $7,500 or 10 percent of a home’s purchase price. the credit starts to phase out for married couple with income over $150,000 and ends completely at $170,000. For singles, the credit i phased out from $75,000 to $95,000.
On the plus side, the definition of a “first-time homebuyer” is somewhat liberal, meaning people can qualify even if they’ve owned homes before. the legislation defines first-time buyers as someone who has had “no ownership interest in a principal residence during the three-year period” before a home was purchased.
The tax credit carries a cost of an estimated $4.8 billion over 10 years – nearly one-third of the bill’s total incentives. The government’s hope is that the credit will get people into homes now and give them time to sort their finances out.