2009 Tax Credits Just One of Many Reasons Housing is Attractive Right Now

By Richard Barrington
Mortgage Credit Problems Columnist

You've probably heard about the $8,000 tax credit for first-time home buyers that was passed as part of the economic stimulus bill, but is that enough to get you into the housing market? Before you answer that question, think about how that $8,000 looks on top of record low rates for mortgages and some other unusually favorable housing conditions.

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Additionally, if you happen to live in California, there's an additional $10,000 tax credit for all homebuyers (not just first time) - but we'll get to that in a second.

About the 2009 Tax Credit

Let's start with the 2009 tax credit. Here are some details:

  • While it is commonly referred to as a first-time home buyer tax credit, anyone who has not owned a home within the past three years can qualify. And so can others with special circumstances.
  • The home purchased must be your primary residence, and you must live in it for at least three years.
  • As long as you meet the above residency conditions, you will not have to pay back this new home buyer credit. Unlike previous credits which were effectively interest-free loans, this one is a pure gift from the government.
  • The tax credit available is the lesser of $8,000 or 10% of the home's purchase price, so as long as you buy a home for $80,000 or more, you can qualify for the full amount.
  • To qualify for the full credit, you must be making $75,000 or less as a single person, or $150,000 or less as a married couple. Higher-income home buyers may qualify for a portion of the credit.
  • Assuming you already file an annual tax return, applying for this credit is easy--you'll simply claim it on next year's return--or last year's if you haven't filed yet.

One other crucial point about this new home buyer credit: it only applies to homes purchased between January 1st, 2009 and November 30, 2009. That's just one reason that this is an unusually good time to buy a house.

Do the Math: The Opportunity Adds Up

On top of the 2009 tax credit, today's home buyers have record low mortgage rates going for them. 30-year mortgage rates fell below 5% for the first time in history during 2009, and even anything below 6% should be considered unusually low.

Besides record low rates, home prices have also come down a great deal. By early 2009, home prices nationally had decreased by more than 27% in just two years, and were cheaper than they had been any time in the past five years.

California's Tax Credit

California's homebuyer credit is at 5% of the purchase price or $10,000, whichever is less. But buyers win two ways-first, the credit applies to anyone-there are no income restrictions-who buys a brand-new home. It's also paid out over a three year period, and like the $8,000 federal credit doesn't have to be paid back as long as you live in the home for at least two years. You can read more about California's generous tax credit in our Mortgage Credit Problems blog.

Perfect Storm of Opportunity?

On its own, the federal $8,000 tax credit would be a pretty compelling offer. Coupled with cheaper home prices and record low mortgage rates though, it adds up to an exceptionally rare opportunity to enter the housing market. However, the clock is ticking. To be sure of closing on a house by November 30th, would-be buyers should enter the market well before them. Meanwhile, housing prices and mortgage rates could turn upward at any time. To start the process you can request a prequalification letter or mortgage quote from our database of lenders.

The first test of whether it's the right time to buy is if you can comfortably afford a mortgage. If you meet that test now, it's hard to imagine conditions being more favorable.


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