Home Buying in Tahlequah>Question Details

Okartteacher, Home Buyer in Tahlequah, OK

is it smarter to use the 8000 tax credit as principal payment or for remodeling?

Asked by Okartteacher, Tahlequah, OK Wed Jul 15, 2009

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I believe that this question depends on the home that you buy. If you buy a home at a great buy and have a few repairs needed, I would put the money into those repairs. The absolute best scenario, however, is to try to find something in your budget that requires the least amount/no work and put all that you can down on the principal of your mortgage. Property will most always appreciate over time. In order for you to build the same kind of equity that the $8000 will provide will take years. In today's world most folks don't actually end up living in the same home for the entire 15 or 30 year mortgage time so when you do decide to buy again you should be realizing more than the actual $8000 that you put back into your mortgage when you finally decide to sell and move onto something new. Not to mention the interest you will be saving. You should run an amortization schedule on this scenario! For Example: On a $100,000 loan at 6% for a term of 30 years you will actually spend $215,838.23 over the life of the note for the home. If you make the one time payment of $8000 towards the principal at the beginning of the second year ( tax refund time) your actual cost over the life of the note is $184,424.39 and you save 65 months! That's over 5 years of payments and $31,413.79 in savings! Now, home loans are front loaded with interest meaning that you pay mostly interest in the beginning and very little of the actual mortgage. So what that means is that if you don't live in the home very long you don't gain much equity. That $8000 will certainly build exponential equity early on! The one thing that you do have in your favor - the$8000 is there for you to take advantage of! This is a once in a lifetime opportunity! The smartest thing is that you are considering acting on it. If there is anything else I can do to help you in your search, please feel free to contact me at my cell # 918-316-0784.

Angi Hayes
Cochran Real Estate
Tahlequah, OK 74464
918-458-5888
0 votes Thank Flag Link Thu Jul 16, 2009
Hello Okartteacher, home buyer, Tahlequah, OK
Building equity is imortant to you as a homeowner. Applying your $8,000 tax credit to your principal and noting on your submitted payment that you want this applied to your principal will reduce your principal mortgage debt and as your property eventually improves in value your $8,000 will give you a jump start in equity. You dont really realize the benefit until you will have ned to refinance or sell your home, or have a plan to pay off your home as quickly as you can. the $8,000 tax credit you do not have to pay back was a stimulus incentive for you to purchase. If you spend it to remodel and will be pumping your dollars back into the economy. If you are conservative you will only spend what you can afford and remodeling is planned into your budget over time. That is a personal judgement you must make. You might consult your Certified Tax Consultant how you will benefit from how you use your $8,000 tax credit, and your lender too regarding paying down your principal before you make your final decision. By the way...who do you know that may be interested in spending their real estate income investing in real property in the beautiful North Coast of Humboldt County California? I have sellers with beautiful properties! Please share with your sphere of influence, and maybe someone you know will be the buyer for one of these great listings! http://www.628-652PacificAve.com http://www.2911SandPointeDrive http://www.3372PrairieAve.com
0 votes Thank Flag Link Thu Jul 16, 2009
It depends what your financial situation is and the condition of the house. I would say if the house is a fixer-upper and cheap compared to the neighborhood then put the tax credit into remodeling. If the house is already nice and compared to the neighborhood is one of the prize houses then put it into the principal payment. This will protect you in the long run from what our economy is doing to the housing market. However, if you are living comfortably and do not have to worry about your finances then remodeling is the way to go. Don't forget, you do not have to pay back the tax credit.

Happy Hunting,
Spencer
0 votes Thank Flag Link Thu Jul 16, 2009
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