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November 12th, 2008
Buy a home now? Really?

President’s Column, Texas Association of REALTORS®

Buy a home now? Really?

You still can’t turn on the news, open a newspaper or browse the Internet without hearing about the economic uncertainty and a national housing crisis. You should know, though, that Texas has fared better than most states as far as the housing slump is concerned. Texas never saw unrealistic price increases that places in California, Florida, Arizona and Nevada did.

Now, I’m not telling you that there aren’t issues, or that Texans are immune to housing problems. That would be insensitive to those who are facing economic hardship or housing trouble.

So why do I think this is a good time to buy a home?

Reasons to buy

Don’t be misled. Despite news of “frozen credit markets”, there are mortgages available to qualified borrowers.

Another factor in favor of buying comes from the Housing and Economic Recovery Act of 2008, which authorizes a tax credit of up to $7,500 for qualified first-time homebuyers who make a purchase between April 9, 2008 and July 1, 2009.

Exactly how much?

The tax credit is for 10% of the purchase price of the home, to a maximum of $7,500. In other words, to realize the maximum benefit, you’d need to purchase a home for more than $75,000.

Who qualifies?

There are two qualifying guidelines: You must be a first-time homebuyer and you must meet income requirements.

The IRS says you’re a first-time homebuyer if you (or your spouse) have not owned a home as a primary residence in the past three years. Interestingly, owning a vacation or second home does not disqualify you. So if you own a home that is not your primary residence and have been living in a rental home or apartment for the last three years, you can still qualify.

The income requirements are based on modified adjusted gross income (MAGI).

If you’re single and your MAGI is less than $75,000 per year, you qualify for the full value of the tax credit. The credit for individuals begins phasing out at $75,001 and is unavailable to those whose MAGI exceeds $95,000 per year.

Couples whose MAGI is less than $150,000 can take advantage of the full credit, with the phase-out ending at $170,000.

What’s the difference?

Tax credits and tax deductions are not the same thing. A tax deduction simply lowers the amount of your income tat gets taxed. A tax credit is a dollar-for-dollar reduction in what you owe. That means that if you owe $7,500 in income taxes and qualify for a $7,500 tax credit, you owe nothing to the IRS. If your tax burden is less than $7,500, you actually get a refund for the difference.

No application

There is no pre-purchase application or approval for this credit. You simply claim the credit on your tax return if you qualify.

So … what’s the catch?

As you may expect, there are restrictions on this program.

First, you can’t claim the credit any earlier than your 2008 tax return (the one you file in 2009). In other words, you can’t use this money as a part of the downpayment.

Also, if you obtain financing for the purchase by means of mortgage revenue bond programs, such as the excellent one offered by the Texas Department of Housing and Community Affairs, you’re not eligible for the tax credit. Put the pencil to the paper and determine which makes the most financial sense based on your situation.

Terms of the deal

Let’s make something clear – this is not a giveaway program. It has a payback provision that makes it similar to an interest-free loan. Two years after the credit is claimed, you will begin repayment. You must pay credit back in full with equal payments over the course of 15 years.

If you qualify for the credit, simply divide the amount of your credit by 15 to arrive at your annual payback total. It’s worth noting that there is no interest charge applied to outstanding balances.

If you sell the house before you’ve repaid the amount you received, you will have to pay the outstanding balance of the credit with the proceeds of the sale. If the home is sold at a loss, the balance of the credit is forgiven.

Any time

So is it a good deal? The short answer is yes. I will take an interest-free loan any day. Because of inflation, money today is worth more than money in the future.

Rely on a Realtor to help

If you have any questions about what the program means for you, ask your Texas Realtor. Your Realtor can help you by acting as your trusted advisor in the transaction and answer questions based on your future plans and financial situation.

For more information about buying and selling real estate in Texas, I encourage you to visit TexasRealEstate.com.

Submitted by Amy DuBose
Association Executive – San Marcos Area Board of REALTORS®

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