With the federal home buyer tax credit set to expire soon, consumers are not being allowed to forget that time is running out. Home builders and real estate agents are giving a big push towards cashing in on the $8,000 credit this year before it’s too late. Some company websites even have an actual countdown clock to the expiration date.
The rule to be eligible for the homebuyer’s tax credit is to have a binding contract on a home in place by April 30th and the sale must be closed by June 30th in order to get the credit. Buying a home with the purpose of cashing in does seem like a good deal but there are other factors to consider when making this all-important financial decision.
Consider there was no tax credit for the moment. Would your decision to buy a home still make sense? If you are able to buy a home that you can really afford and the home is something you like, it may be the right time to buy. But if you are doing it just for the sake of saving a few thousand dollars, the consequences could cost you much more. You’ll not only struggle to afford housing payments for a house you now own, you may find that you settled for a house you are not entirely happy living in. You don’t want to regret buying something as costly as a house.
Consider the after costs. While you get the nice tax credit one year, what happens after that? Can you afford the upkeep of a home in addition to the taxes, insurance, and mortgage you’ll be paying? If you don’t think you can keep up with the responsibility, financial and physical, you might consider renting for a longer period of time.
In the grand scheme, the credit is small. If you bought a home that cost $150,000, the $8000 tax credit is only a small portion of that amount (5%). Consider a 5% discount on a new car or other big ticket item and the benefits may not sound so attractive. You have to look at the big picture before settling for a home just for a decent refund.
How prepared are you? A lender is well aware that time is counting down so if you rush in to getting credit for a mortgage, the lender may actually see that as a negative mark against you. Today’s lenders are looking for much more responsible borrowers who can prove good money management skills. If you are rushing to buy for money reasons, the lender may not be as willing to lend the credit. Additionally, since there is a deadline in sight, you are not guaranteed a smooth transaction when closing the deal. If you haven’t yet begun the process, you may not be in time to meet the closing deadline of June 30.
Consider all that is involved with a home purchase and forget about the tax credit in the equation. Make a financial decision that is in your best interest of your financial future and not just what you can get this year. A home is a big responsibility and purchasing a home for the wrong reasons can cause much more grief than its worth in the end.