Please understand that the $7,500 tax credit must be paid back.
The â€œfirst-time home buyer creditâ€ is a temporary refundable, repayable tax credit equal to 10% of the purchase price of a home, up to $7,500 for singles and married couples filing jointly. (Singles who buy a house together get only $3,750 each, as do married couples filing their tax returns separately.)
But the way the credit works, itâ€™s actually more like an interest-free loan. Two years after you claim this credit, you have to start paying it back. The payback comes over 15 years in 15 equal installmentsâ€“meaning you owe an extra $500 on your tax return each year. Sell your house, and you have to pay the rest back that year from your profits. (No profits, no pay back. Also, if you die, your heirs are off the hook.)
The allowed credit starts being reduced once a single has $75,000 of modified adjusted gross income, or once a couple has $150,000 of income. The credit goes away entirely at $95,000 for singles and $170,000 for couples.
The justification behind a $7,500 interest-free loan is that it is supposed to ease the â€œpainâ€ of having to come up with closing costs and a downpayment. But waitâ€¦ Wasnâ€™t the housing bubble caused in part by people being tempted into buying houses they couldnâ€™t really afford because they didnâ€™t need to first save up for closing costs or a downpayment? I find it ironic that governments choice of â€œbuyer assistanceâ€ is even more easy lending.
I would skip the $7,500 tax credit, that's a NIAGTTB sales tactic.
Start looking, but take your time. On a national average basis, prices will drop by 20% minimum in 2009. Maybe not in your market though. There will be about 700,000 forclosures released in the next week or so. That should help ease prices down a little more.