First Time Home Buyer

The news reports good news for many first time home buyers purchasing a home between April 9, 2008 and July 1, 2009. These first time home buyers may be eligible for a tax credit under a new bill that has been signed by the legislation and is anticipated to be signed by President Bush. The tax credit will be $7,500 or 10% of the purchase price of the home; whichever is less. This is creating a lot of excitement for many potential first time home buyers; however, a shadow looms over the excitement. Initially looking at the tax bill it looks to be a great deal. A tax credit is more valuable than a tax deduction as the credit is a dollar for dollar reduction in taxes. Additionally the tax credit in the bill is refundable which benefits filers whose federal taxes are less than $7,500. For instance, a filer who owes $2,000 in taxes will still receive $5,500 and a filer who gets a tax refund of $2,000 will receive a refund of $9,500. This does not go without a few catches though, these include:

• Pay Back: Although labeled at tax credit it is more of an interest free loan. A first time homebuyer who claims the credit will have to repay it in installments over 15 years. The repayments will start in the second year after the home is purchased. A home purchased and claimed on the 2008 tax return will have an additional $500 a year in taxes starting in 2010 and going on for 15 years. Should the home be sold before the 15 years the remaining balance is due at closing unless the home is sold at a loss.

• Income Limits: There are income limitations to be eligible for the tax credit. AGI of below $75,000 for single or head of household filers can receive the whole credit while they will only receive a partial credit if the AGI is between $75,000 and $95,000. AGI of below $150,000 for married filing jointly are eligible for the whole credit while they will only receive a partial credit if their AGI is between $150,000 and $170,000.

Additionally the legislation allows homeowners that do not itemize to deduct up to $500 in property taxes each year for single or head of household filers and up to $1,000 for married filing joint. Joint fliers who pay property taxes in 2008 will be eligible for a standard deduction amount of up to $11,900 and the single homeowner will be eligible for up to $5,950.

Naturally the amount of the property tax deduction is not allowed to exceed the actual amount paid in property taxes. For instance, a single filer who paid $400 in property taxes will only be allowed to deduct $400. Additionally, unless Congress votes to extend the property tax deductions it is limited to the tax year 2008.

Talking to many people today they are looking forward to becoming a first time home owner and with the prices of homes sinking rapidly they think it is a great time to buy. Homes that would previously be far out of reach are now becoming more affordable, to the excitement of the potential first time home buyer. Unfortunately, according to several reports, mortgage insurers have been upping their standards in the United States. What this means for the first time home buyer is they have to be at the top of the bar that is raised to obtain the mortgage. Mortgage insures are defining an ever increasing number of markets as declining. In these areas that they list as declining they are requiring a higher down payment as well as higher premiums. This means that the homes that were thought to now be affordable are still out of reach for the first time home buyer. The buyer will have to have a substantial down payment and in the declining economy saving 5 to 15 thousand dollars for a down payment is out of the question.

The market that seems so appealing to the first time home buyer and others hoping to cash in on the floor dropping out of the housing market may not be as profitable as once thought. The national home price index fell about 16% from its peak in the second quarter of 2006 and in some markets houses are selling for 50% less than a year ago. They; however, are not being sold to many first time home buyers but instead to developers hoping to turn a profit.

Additionally there is a surplus of bank owned forecloses today making prices fall even farther. Between the foreclosures and other homes on the market there are plenty of affordable homes to choose from. If only the tightened mortgage standards would allow people, including the first time home buyer to clear out the inventory. There are ways of obtaining a substantial down payment and the first time home buyer with control of his credit score and shows reliability and responsibility will be able to cash in on the falling house prices and afford the unaffordable dream home. With private buyer assistance programs, gift money from family, savings over time and the sale of high dollar assets even the first time home buyer will be able to meet the heightened lending standards of the mortgage insurers.

Business is still business and companies are still in to turn a profit. Making sure you are at the top of the class will ensure you obtaining that mortgage and moving into the home you have dreamt of. Run your credit report, make sure it is in good shape, have a substantial down payment ready and start shopping for that dream home today.