I wasn’t paying close enough attention to this housing bill. I thought it was all about mortgage re-negotiation and foreclosure prevention (and it certainly offers help in those important areas). But I was surprised to read in today’s New York Times that it also aims at stimulating housing demand among first time homebuyers by offering a tax benefit that is essentially a 15-year interest-free loan (up to $7,500 depending on your tax status) for first time homebuyers purchasing a home between April 9, 2008 and June 30, 2009. The benefit begins to phase out for single people earning more than $75,000 or couples earning more than $150,000.
This loan (officially a tax credit/refund with required repayment over 15 years) will not make a huge difference for the average first-time home buyer, but it could have a meaningful impact on housing affordability and asset-building for lower-income home buyers (especially in combination with more substantial first time home buyer opportunities like those detailed in a previous post of mine).
The critical task will be to make sure that the beneficiaries don’t look at this as a windfall and simply use it to spend above their means without recognizing that it will need to be paid back. What I hope is that asset development practitioners and community-oriented financial professionals can help first-time home buyers set up appropriate savings or investment vehicles that allow them to put the money away, earn investment/interest returns, and have sufficient funds available in future years to make the required repayments.
No-interest loans will surely help grow the pool of capital available for asset-building strategies, ranging from home repairs and maintenance to small business development to retirement savings.
With some creative thinking, financial professionals (especially in the nonprofit asset development field) could play a huge role in helping new homebuyers maximize the value of this opportunity. We could design initiatives in which income-eligible new homebuyers receive an additional financial incentive for putting their refundable credit into a restricted investment vehicle like an IRA or a 529 college savings plan or an IDA-like custodial account. That might only impact a select number of beneficiaries directly, but it could build awareness within the broader population of new homeowners about how to responsibly invest the refundable tax credit. I could imagine some financial institutions being excited to partner on such initiatives.
Does this temporary legislation allow enough time for the field to respond in creative ways? We’ll see.
July 28, 2008 at 6:47 am |
[...] Blair Benjamin from Asset Almanac presents Housing Bill: New Help for First Time Home Buyers. [...]
July 28, 2008 at 12:36 pm |
[...] of days, over 500 people have visited my blog (which typically gets 10-20 readers a day) to see what I had to say about the benefits for first time home buyers in the new federal housing bill in my post on Friday. That’s practically a tidal wave considering the somewhat obscure [...]
November 16, 2008 at 3:47 pm |
This tax credit is fine after you buy the house but you have to buy the house first and that requires at least 3.5 % down not to mention closing cost, 2 months worth of mortgage payment reserved, appraisal, home inspection, etc, .You have to have at least close to $14K just to be approved for a $200K house. This is especially hard to do during times of recession and by the time recession ends the prices of houses on average will have started to be more expensive in the mid or at least in the $300K range and that requires even more money.
February 13, 2009 at 1:06 am |
[...] Understanding the 2009 Stimulus Bill First Time Home Buyer Tax Credit My most widely read post ever, by far, was last July when I noted the passage of the 2008 Housing Bill that contained assistance for first time home buyers. [...]