When most markets fail, the government does not do much. The housing market is different. It forms the backbone of modern America. The giant banking bailout is one big sign of its importance, but homebuyers are getting help as well.
The housing market is a bottom up feeder system. Simply put, you buy a home, build some equity in it over time and then sell it. You use your gain to buy a bigger house and so on through life.
This process starts with first time homebuyers. They are critical to the system. Without them, there is nobody moving up from the bottom and the system will come to a grinding halt.
First time buyers are staying away from the current market. Regardless of all the other issues hurting this market, this is a giant problem. The government has acted swiftly to change things and get these buyers active again.
The big carrot being dangled is a tax credit created as part of the Housing and Economic Recovery Act of 2008. It is a very big carrot, indeed. How big? Try a $7,500 tax credit for first time homebuyers.
A tax credit is a beautiful thing. Why? It is applied directly to the tax amount you owe after doing your taxes. If your accountant tells you a check for $3,000 is due to the government, a tax credit is deducted directly from this amount on a dollar for dollar basis.
An example always helps show the power of a tax credit. Assume I can claim a tax credit of $5,000. Assume I owe the IRS four thousand dollars at the end of the year. After applying my tax credit, the IRS now owes me $1,000. Check, please!
You are probably wondering if it is realistic to ask for more than I actually owed. Yes. This is a fully refundable tax credit. In plain language, this means that it does not matter what I owe. Not bad, eh?
When there is a big carrot, there is often a line tied to it. Sadly, this is the case here. The government is not giving away a freebie. You have to pay back the credit. You have 15 years to do it, which means about $40 bucks a month.
The amount of money you make also can be a problem. Couples making more than $150k and non-couples making over $75k face a phase out problem. If you are making this kind of money, however, you probably should already own a home.
You want help buying that first home? Well, the government is giving it to you. A $7,500 tax credit is going to be a huge help with your taxes, so make sure to make the appropriate adjustments to your paycheck and start house shopping.
