Buying a house? Tax credit extension puts cash in buyer’s pockets

By Joseph Cyr
Staff Writer
    Individuals purchasing a new home in the near future received an unexpected gift from the federal government when President Barrack Obama signed a new bill Friday expanding tax credits for both first-time homebuyers and current homeowners.
    The bill, which went into effect Friday, extends the popular tax credit of $8,000 for first-time homebuyers. The credit was set to expire Nov. 30, but has now been extended to April 30, 2010. To be eligible, a buyer could not have owned a home for the past three years and had to have an income limit of $75,000 (single) or $150,000 (married).
    Also included in the bill is an additional credit of $6,500 for current homeowners who are purchasing a new home. To be eligible, individuals must have lived in their current home as a primary residence for five consecutive years over the past eight years. A written, binding contract to purchase must be in effect by April 30, 2010, with the purchaser having until July 1, 2010 to close. Income limits for this new credit are $125,000 (single) or $225,000 (married).
    “We were watching the situation closely, hoping they [the federal government] would extend that credit,” said Greg Miller of RE/MAX. “I know I speak for everyone when I say that this will make a big difference for us over the winter months. It will keep people interested.”
    According to the National Association of Realtors Web site, the NAR estimates that the current tax credit contributed about $22 billion to the general economy, and approximately two million individuals will take advantage of the credit this year.
    Locally, the initial tax credit did generate some interest from first-time buyers. At First Choice Realty in Houlton, agents Scot Walker and Lori McNutt said the credit provided a spike in business, particularly in the past few months.
    “I definitely believe it boosted interest [in first-time buyers],” McNutt said. “I think the first-time buyers are having a harder time getting qualified for loans. Nationwide, I’m sure it made a big difference.”
    “Being exclusively for first-time buyers, there were not that many individuals who could take advantage of it,” Walker added. “Did we have sales? Yes. But a lot of people who could take advantage of the tax break were likely in some situation, like a lack of credit, that affected their ability to buy a home.”
    Miller said he had about five buyers over the summer who took advantage of the first-time homebuyers credit.
    While the winter months are typically the slowest for real estate sales, that might not be the case this year thanks to the revamped tax break.
    “If anyone is thinking of moving up or downsizing, now would be the time to do it,” McNutt said. “I think including existing home buyers is huge.”
    “I’m not so sure that will be a real motivating incentive for people to buy and sell, but it could help some people make a decision to move forward,” Miller said.
    Many realtors were seeing a last-minute scramble to close on a home before Nov. 30, the original deadline for the tax credit.
    “We were scrambling to get some houses closed before Nov. 30,” Miller said. “There was definitely a spike in interest. The folks who were on the fence wondering if they should buy, saw that deadline looming and were trying to get a deal done.”
    For existing homeowners buying a new house, the maximum amount they can spend on their new home is $800,000.
    “The average house in Aroostook County sells for about $90,000,” Walker said. “Take $6,500 or $8,000 off that price and you’ve got yourself a 10 percent savings. The vast majority of Aroostook County residents will easily meet the income requirements.”
    Miller said those clients who received the credit were either putting that money back into their new homes for renovations, applying it to the principle or simply using the money in lieu of making a house payment for up to a year.
    “I had one buyer who was going to do a new bathroom,” Miller said. “Another told me it was going straight into their savings account as a cushion in case of an emergency. It gives a comfort level to a new buyer because now you can have a cash reserve in the bank if something does come up.”
    “By allowing people who already own a home to qualify, I believe it will create a rush,” Walker said. “People have to have their new home under contract by April 30 and close by June 30.”
    According to McNutt, the tax credit is applied when filing your federal income tax documents. A form needs to be filled out and submitted with your tax forms to receive the credit. If a homeowner typically receives a tax return from the federal government, the $6,500 or $8,000 credit will be added to that tax return.
    “It will be interesting to see how fast these tax return checks come in,” McNutt said.
    For more information on the homebuyer tax credit, contact your local real estate agent.