Financing Solutions with David Reed

Posted by Cal Carter Team Leader on Monday, August 18th, 2008 at 7:42am.

Financing Solutions with David Reed

Help has arrived: U.S. Congress comes through with relief


The Housing and Economic Recovery Act of 2008, the most sweeping housing legislation since the Depression era, was passed by the U.S. Senate and House of Representatives at the end of last month and was signed into law by President Bush. The new law addresses various aspects of the housing downturn, including assistance for homeowners who are behind on their mortgages, federal oversight of Fannie Mae and Freddie Mac, and funding for cities to buy and fix up foreclosed properties. Many of the provisions of the new law go into effect October 1, 2008 but for first-time home buyers who bought, or will buy, their home between April 9th of this year and July 1, 2009, there’s an immediate bonus — a tax credit of up to 10 percent of the sales price, up to $7,500.  Note that this is a tax credit, not a tax deduction. A deduction is an item that is subtracted from your annual income before income taxes are calculated. A tax credit is subtracted from the amount of taxes you owe. 

“First-time home buyer” is specifically defined in the new law, and includes those who may have owned a home in the past, but not within the last three years.  To qualify, be prepared to show your last three years’ worth of income tax returns to prove that you did not pay mortgage interest during that period. There are also income limitations on the tax credit - $3,750 per year if you’re single and $7,500 jointly if you’re married. 

By the way, the tax credit isn’t a gift - you have to pay it back.  Nevertheless, it provides an initial reprieve, as repayment doesn’t begin until two years after purchase, and is payable over a 15 year period. If you sell the property before the tax credit has been fully repaid, any remaining amounts owed are due to the IRS upon closing.

Applying for the tax credit isn’t mandatory, but for many, it will make home ownership feasible in the coming year — and that’s exactly what the tax credit is intended to accomplish.

Written by David Reed, Texas-based mortgage banker with more than 20 years experience

Cal Carter
The Team


Realtors® serving the Alabama Gulf Coast
Keller Williams Realty Alabama Gulf Coast

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