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New law provides tax incentives

Your Mortgage

Posted: September 26, 2008 8:03 p.m.
Updated: November 28, 2008 5:00 a.m.

It’s hard to believe that anything that takes nearly 800 pages to describe could be time sensitive, however, the Housing and Economic Recovery Act of 2008 was recently enacted and, for many, it may provide the incentive needed to act now, and finally buy a home of their own. A new $7,500 tax credit for first-time home buyers is a temporary incentive from the government to boost interest in real estate — but the time frame to take advantage of the credit is limited.

Blue Light Special
When retailers have too much inventory they have a sale — and the same is true in the real estate market. With home prices falling all across the nation, the real estate sale is clearly marked with “For Sale” signs everywhere you look. According to the National Association of Realtors, home prices have dropped about 7 percent nationally from one year ago, and the inventory of homes available is the highest since 1968 — all meaning there is a great selection of well-priced homes on the market.

Add to that the government’s new $7,500 tax credit for first-time home buyers and what you have is a real opportunity for many Americans who act quickly to take advantage of lower prices and make their dream of homeownership a reality.

And the more buyers who enter the market, the faster things will improve for distressed home sellers and areas hit by foreclosure at all price levels. The $7,500 tax credit for first-time home buyers could be a substantial contributor to change for those who qualify: anyone who hasn’t owned a home in the past three years and buys a home between April 9 of this year and July 1, 2009.

And hey — notice those dates? That’s right, the credit is retroactive for folks that bought earlier this year.

So what’s the catch? Of course there are a few. You have to fall within certain income guidelines, typical for a tax benefit. And interestingly enough, the tax credit must be paid back over 15 years — so it’s much like an interest-free loan. But it remains a tremendous benefit worth discussing, and for some people, it could be just enough to make the difference between renting and owning.

Gain perspective
Limiting options in this challenging real estate market is disappointing; however, history provides some perspective. Only one in four households owned their home in 1934 when the FHA was formed during the Great Depression. In addition to the economic devastation, mortgage terms were nearly impossible: Mortgages were limited to 50 percent of the property’s market value, repayment was spread over only three to five years and there was usually a large payment due at the end of the schedule.

Can you imagine having to come up with half of a home’s value to buy it? In that light — things really aren’t too bad today.

How big is the step between renting and buying? Anyone with a steady job and a landlord should immediately make an appointment with a reputable lender to find out.

And the $7,500 tax credit is a real door buster. You can bet that there will be more massive, too-good-to-be-true, never-before sales on vehicles or appliances, but the opportunity to get a special deal on your financial future is a limited time offer. Don’t let the door close in your face if there’s a chance you could be ready to cross the threshold to homeownership.

Mark Foster is a locally-based consumer advocate and mortgage planner in Santa Clarita. He can be reached at (661) 268-8188 or by e-mail at His column reflects his own views, not necessarily those of The Signal.


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