Is It Time to Buy a House? Look Beyond First-Time Homebuyer Tax Credit

house tax creditI’ve been seeing last-minute real estate ads reminding potential home buyers about the federal first-time homebuyer tax credit that expires at the end of 2009. The credit equals 10% of a home’s purchase price, up to a maximum of $8000. For the right buyers in the right place at the right time, taking advantage of this credit could make a lot of sense.

Still, the tax credit alone doesn’t mean this is the right time for you to buy a house. First of all, research the tax credit and make sure you qualify for it. The IRS website is a good place to start.

The credit applies to first-time home buyers, which as defined by the IRS couple dreaming of homemeans neither spouse can have owned a home as a principal residence in the past three years. A vacation home or rental property doesn’t disqualify you. Your combined “modified adjusted gross income” must be under $150,000 ($75,000 for single taxpayers). The credit doesn’t apply to a house purchased from a close relative such as a parent or grandparent. In addition, you must live in the home for three years to avoid having to repay part of the credit.

This credit may be especially helpful for those who are genuine first-time home buyers, such as young couples looking to move into their first house who are looking at lower-priced homes. Still, there are a number of issues such a couple needs to consider:

1. Your earning capacity is more important than how much you save for a down payment. It’s essential to be sure you have an affordable monthly payment. Ideally, you could afford the mortgage on only one of your incomes. This would allow you to comfortably stay in the house if one of you loses a job or you decide to start a family and have one parent stay home.
2. Pay attention to your credit rating by making current payments on time and paying off any old debts that may lower your credit score.
3. Carefully consider the hidden costs of owing a home: filling it up (furniture), keeping it up (maintenance), getting to it (commuting), and protecting it (insurance). Figure these into your budget as well as your mortgage payment.
4. “Buy low” is good advice that applies to more than the price of the house. It also includes the mortgage interest rate and associated closing costs.
5. Shop for mortgage rates and get pre-approved, but use a reputable lending agency rather than an online company you’ve never heard of.
6. Find high-quality professional help. Be sure to become the “client” of a Realtor who represents your interests, rather than the “customer” of a Realtor representing the seller.
7. Do your research, online and in person. Take time to look and become an expert on the price range and neighborhood you’re considering.
8. Be willing to negotiate to get the house you want. One negotiating rule is to “Tell them what you will do, not what you won’t do.”
9. Expect setbacks and at least one closing “surprise.” There is always something, whether it’s a delay in the closing or a plumbing leak that shows up the day after you move in. Don’t give up just because you encounter difficulties.
10. Keep in mind that a house is primarily a place to live, not an investment. Expectations about its future value are less important than whether you can comfortably afford to live in it.

hands holding houseBuying a house is one of life’s milestones. Make the purchase carefully, and you can celebrate living in your new home for years to come.

Share Button
Print Friendly, PDF & Email

, ,

2 Responses to Is It Time to Buy a House? Look Beyond First-Time Homebuyer Tax Credit

  1. Lee October 12, 2009 at 5:11 pm #

    Mr. Kahler, you make very sound points that I agree with completely. I am a realtor for the Black Hills and encounter a few folks who seem to want to buy now just to capture this one-time deal by signing up for 30 YEARS of recurring obligations. Fine, if someone was already planning to buy anyway in the next few years, and decide to go ahead now in order to (1) capture these great home prices, and (2) the $8,000. But I agree with you. It could be foolhardy to make a lifelong commitment at this time just to get a one-time check.
    Lee Alley


  1. Rick Kahler's Advice on Refinancing or Paying Off Mortgage | Financial Awakenings - December 17, 2010

    […] There is no hard and fast rule about when it’s best to pay off or refinance your mortgage. The bottom line is to make the choice that will help you live more comfortably, both emotionally and financially, in your own home. […]