The Town Broker

The $28,000 Home Buyer Credit?

Well…kinda. You’re probably aware that until this past April, the IRS was offering an $8,000 Home Buyer Credit to qualified first time buyers and a $6,500 credit to trade-up buyers. And when the program disappeared on April 30th of this year, so did the housing market in much of the country.

But what you may not realize is that since this program expired in April, home buyers have received a much less publicized $28,000 home buyer incentive. And this one is for ANY buyer who is qualified to purchase using a 30-year fixed rate loan. How are these savings earned? Through reduced mortgage interest. Let me explain…

Mortgage Interest Rates Are At All Time Lows.

That’s right…mortgage rates are low…”stupid low”…unsustainably low according to most market analysts. At the time of this post, Freddie Mac shows the national average on a 30-year fixed mortgage to be 4.36% with 0.7 points. (Actually, TODAY I had some mortgage guys telling me they could do 4.0% with ZERO points!!)  When the Home Buyer Tax Credit expired in April of this year, Freddie posted the national 30-year fixed average at 4.74%, with 0.7 points. So what does all this mean?

It means that if you bought a $350,000 home (yeah, that’s a starter home in our local market) at today’s rates instead of the rates in April…just 4 months ago… you’d save $79.26/mo. in mortgage interest. That’s a savings of $951/yr. and an AMAZING $28,533 over the life of the loan!!

And want to hear something really crazy? If you bought today instead of April 2008…when the federal tax credit began, you’d save more than $120,000 over the life of the loan!! That’s because in April 2008, the 30-year fixed sat at 5.92 with 0.4 points!! (Which everyone thought was VERY good at the time.)

Feel free to plug your own numbers into this loan calculator to see how today’s numbers work out for you. (Just be sure to compare your actual numbers to the April 2010 30-Year Fixed average of 4.74% with 0.7 points). And while these savings are not actually a “tax credit”, the money you keep is in real, honest to goodness greenbacks!

So why is everybody still so focused on the measly $8,000 Tax Credit?

Being Impatient And “Sticking It To The Man”

I think that for starters, it’s $8,000 tax credit that can be earned in a single year, instead of getting it in annual cost savings. You would actually have to live in the house 8 years to save $8,000 in our example above. Let’s face it…we can sometimes be pretty impatient. And since most people don’t live in the house for the entire 30 years of the loan, $28K is probably a bit overstated. But for the average person who stays in their home 8-10 years, the savings lost in the elimination of the tax credit have already been replaced by interest rate savings!

And I think that there is something about getting money from the IRS that causes people to act. People like to stick it to the man! Feeling like you’re saving more on your taxes, makes us feel smart…like we pulled a fast one.

But this is not the kind of market to be swayed by clever marketing incentives…even $8,000 ones coming directly from Uncle Sam. This is the kind of market to step back, look at the real numbers, and make an educated decision.

As always, consumer confidence drives the housing market…not incentives. And that means the economy and job market need to get on track. But if you’re thinking about buying a home, today’s interest rate environment presents an amazing opportunity! With buyers in firm control of the market in most areas, and interest rates at all time lows, there probably won’t be another buying environment like this again (at least not in your lifetime…or mine, for that matter).

For additional information on buying or selling in today’s market environment, contact Hal Benz -Your Home Sale & Short Sale Specialist. 908-216-4836

Tags: Home Buyer Tax Credit