The Window is Closing on First-Time Homebuyer Credit

The American Recovery and Reinvestment Act of 2009 allows up to an $8,000 tax credit for first-time homebuyers that purchase a principal residence in 2009 before December 1, 2009. A first time buyer, for the purposes of this program, is anyone who has not owned a home in the last 3 years. The benefit is a dollar for dollar tax credit that doesn’t have to be repaid as long as the home remains the principal residence for a 3 year period. This is a great program for first time buyers, but time is running out. For a purchase to qualify, it has to close before December 1, 2009. Full details of the program can be found at IRS.gov. A link to the applicable page can be found on my website ClaudiaHohlt.com.

While some lobbying efforts are underway to have this benefit extended passed the current deadline, there’s no assurance that it will be. The good news is that there is still time to take advantage of the existing program. But considering the time needed to search for a home, secure financing and close the transaction, a sense of urgency is needed to qualify for this extraordinary government benefit. The best way to beat the clock is to have a pragmatic approach.

The first step of any major financial transaction is to meet with your financial advisor. Perhaps that’s you yourself. But whoever it is, make a determination of how much upfront cash you can spend for the down payment and closing costs and the amount of monthly home ownership costs that your budget can comfortably afford. The budget for home ownership costs should include mortgage payments, real estate taxes, home insurance, HOA fees, maintenance and utilities. To crunch some number, you can find an analytical tool on my website called “The Mortgage Comfort Zone Calculator”. It’s Excel based and can be downloaded for free.

The next step would be to meet with a mortgage company or banker to get pre-qualified for a loan. This is a relatively easy process, but one that is very necessary at the time that you submit an offer on a home. A seller will want to see evidence of your ability to purchase their home before they will consider your offer. The mortgage company will ask some questions, crunch a few numbers, and determine the loan amount and corresponding monthly payment that they feel you are able to manage. This is the amount that the lender will indicate on your pre-qualification letter. Now if their loan amount is more than what your financial advisor determined, there’s no rule that states that you have to purchase the maximum amount for which your lender tells you you’re qualified. You should stick with the lower amount you already felt comfortable with. Everyone has their own appetite for risk. But when taking into consideration the security that home ownership provides, it is always prudent to stay within your comfort level.

At this point, you can start seriously looking for a home. With the internet, you can search a myriad of websites to get a feel for home styles and prices. But after some preliminary research, I recommend that you choose a real estate agent to represent you. Picking an agent is a topic for a future column, but keep in mind that an experienced, full-time, local, service oriented real estate professional will almost always give you the best results. A knowledgeable realtor can answer questions on schools, neighborhoods, demographics, etc., to help you decide on the selection criteria of the homes you would want to view. Then, the realtor can quickly sort through the thousands of homes on the market in Montgomery County and present to you a packet with details on homes that meet your specific criteria. And then the realtor can make appointments and accompany you to view the homes and give you their professional opinion. And the best part of this is that there’s no charge to the buyer because the seller pays the realtor commission.

After you select a home, your realtor will be a key player in the negotiations by providing you with comparable home values and working with you and the seller’s agent on various contract issues. Once your offer is accepted, your realtor will prepare the contract and provide information on inspections, appraisals, walk-throughs, etc. In fact your realtor will be with you every step of the way until completion of the contract.

Buying a new home can be one of the most stressful events you will ever encounter, especially for first-timers. But I feel that following the above steps will minimize the stress and may even make it a fun, enjoyable adventure! At the end of the process, you will enjoy all the benefits of home ownership. And the icing on the cake will be getting the huge tax refund.

If you would like to take advantage of this program, please give me a call.