Know what the REALTORS® know by viewing the YouTube from the Minnesota Association of REALTORS®:
A few notes about the first-time home buyer $8000.00 tax credit:
The home buyer tax credit began as more of a loan that would be repaid over a period of 15 years. Lawmakers saw that this was a rather lame idea, so last year they decided to make it a fully refundable tax credit of $8000.00, or 10% of mortgage costs, whichever is less. This might seem like a great idea until you stop to consider that most buyers will need the cash before they buy a house because they don’t have any money saved up for down payment and closing costs.. Hey… it’s the Visa Generation.. nobody has any savings.
Monetizing the Tax Credit
As a solution, FHA lenders will be providing a cash “advance” on the tax credit, along with a promissory note specifying terms of repayment. The money is called an “advance” because FHA does not allow borrowers to take out loans for cash-to-close. The rules will also stipulate that the advance (this is really just a loan called by another name .. who are they kidding?) cannot be secured against anything.
Of course the Minnesota REALTORS like the $8000 dollar credit, and do not wish to see it expire at the end of the year. They would like to see it increased to $15,000, and would like it to be available for move-up, Minneapolis luxury home purchases. Some consider this a total payoff to all of the builders who lobbied hard for the tax credit.
Is this tax credit a good idea? Well, home buyers think it is a good idea. Others think that if you can’t afford to save money for down payment, you really should not be buying a house. Is it good policy to advance money to people who cannot come up with a down payment? Will this cause another crisis down the road? Also, how do we pay for it? Do we cut other spending (probably won’t happen) do we go deeper in debt, or do we cover it with a value-added tax? (Law makers know this is not a popular idea, but a VAT might help shrink the debt.) By some estimates, within one decade, your personal share of the debt will be about $155,000 and foreign investors will stop buying the debt, and bond rates will skyrocket.
Some think the tax credit would not be as harmful as previous programs that use seller contributions to cover home loan cash requirements because there would not be much incentive for sellers to inflate prices to cover their cash outlay for buyers. Also, the buyers would be more likely to see the money as their own, and would be less likely to jack up their offers. (Wait a minute.. it’s still free money) Many believe that the credit is necessary to shore up a flagging home market. Maybe so.
I am glad I am not the President.
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