I had an interesting open house recently and had the chance to talk with a well respected real estate broker from our area. Although he was not interested in the Open House property, he did give me a few suggestions on how a First Time Home Buyer (FTHB) can use the credit to get into a home. We talked about a few things that you might be interested in trying to help you afford the home you really want. Assuming you have some or all of the $8,000 in advance or a way to get the money in advance, try doing the following:
1) Payoff small balances - If you have less than a year left on your car loan or student loan, pay if off. This will increase your home purchasing power and eliminate the debt after you close on your home. Depending upon your credit and income/debt ratios, reducing your monthly bills by $350 per month (average car payment) can add a thousands to your purchasing power (around $58,000 at 6%!).
2) Payoff credit card balances - Although many people owe more than $8,000 on credit cards, not all of the balance is often found on one card. Look at your statements to find out which cards can be paid off with the least amount of money. Look at the "retail cards" like your Kohl's charge, Sears charge, Home Depot Card, etc. If the balances are low enough to pay off, do it! These cards usually carry the highest interest rates possible and entice you to spend more, so when you do pay them off, CUT THEM UP AND CLOSE THE ACCOUNT!!! Closing the account is one of the best ways to ensure you don't run up a balance again. Every $1,000 you owe can reduce the amount of home you can afford per month by $6.00. Doing this with the $8,000 tax credit could allow you to add $48 to your monthly payment which could be the difference between a 2 or a 3 bedroom home.
3) $8,000 can cover, in some cases, all of your closing costs and down payment. The problem is that you can't borrow money for your down payment, but it is legal for someone to give you a gift to buy a home. Your lender will ask for a gift letter to show the source of the money. Keep in mind that you can file an ammended return for this tax year to get the tax credit now rather than next year. So, you get a gift from a relative to buy the home, file to get your tax credit, and give a "generous gift" to say thank you to your generous relative.
I keep using the $8,000 figure which is commonly being advertised. The truth is that this is a combined figure for a "couple". Individual first time home buyers could qualify for up to $4,000. There is also a deadline of December 1st, 2009 to settle on your new home, so don't delay in buying it! You might qualify for this even if you have owned a home in the past. The definition of a first time home buyer is someone who buys a home who has not owned a home in the past three years. I also encourage you to talk with a tax professional or accountant for more information for your situation. If you would like more information or would like to start your home search, let me know and I'll put my team to work for you!
Bill Nelson can be reached by phone, 856-466-2502, e-mail, wnelson@cbelitenj.com, or online by visiting www.billnelsonrealtor.com.