A Year Later – The First-Time Homebuyer Credit

by Thursday Bram · 12 comments

A little over a year ago, my husband and I signed the paperwork to close on our first house. We had hurried up our house-hunting process to make sure that we closed before the First-Time Homebuyer tax credit was set to expire. The deadline was eventually extended, but it was still a major factor in our decision.

We immediately filed an amended tax return so that we could immediately collect the credit. Once that paper work went through, we turned around and spent a hefty chunk of the $8,000 credit on some plumbing work that was necessary to replace that part of our dream home’s plumbing that was original to its construction in 1918. While the tax credit didn’t make a world of difference in helping us to buy a house, it did make a difference in which house we were able to buy. The alternative to using the money we received as a result of the tax credit for that plumbing work was putting it on a credit card — not really a financially-savvy decision when we’d already just taken on a mortgage.

A Year Later

After a year of living in this house, I believe that the way we used the money we received as a result of being able to claim the First-Time Homebuyer Credit made sense. I know several home buyers who took the credit and immediately paid that $8,000 towards their mortgage. I know more who used it to buy furniture or to pay everyday bills, which was likely more in line with what the government wanted that money to be used towards. Personally, I see paying down the mortgage as one of the best choices available.

But the tax credit is creating some interesting — if not altogether problematic — scenarios. It’s easy to forget that you’ve claimed such a credit a year out and are still subject to its requirements. But if, for instance, a family who bought a house last year and took the credit finds themselves needing to sell their home and move (say, for a new job), they are obligated to pay back the credit. A few situations have come up where just that has happened: somewhere in the process of selling the house and completing closing, someone figures out that they need an extra $8,000 to pay Uncle Sam. It’s a bad situation at best.

The Program as a Whole

Beyond the question of how useful the First-Time Homebuyer credit was to individuals, there’s little question as to its effectiveness on a national level. It was intended to boost sales in the housing market, hopefully improving the economy as a whole. It created a short, artificial bounce in the market, but the effects were entirely temporary and the housing market continues to face an over-abundance of unsold houses.

David’s Note: I took advantage of the home buyer’s credit too, but I don’t believe any of our tax payer dollars for this initiative helped the housing market in the long run. As Thursday said, it artificially bumped up demand during those short few months, but all it did was shift the demand from later months earlier. And without new demand to keep prices up after the credit expired, housing prices dropped right back down.

For home owners like us who bought during that time, it just meant that we paid a higher price than normal if there weren’t as much demand. If we can comfortably afford the house, then this is okay on a national level. If we had to stretch a bit to pay for the mortgage, a likely scenario for many, then it meant less money for daddy to buy his gadgets, less money for mommy to buy shoes, and less money for the kids to go to Disneyland – in other words, there is less money for a typical household to put back into the economy.

It does, however, benefit the people who were smart enough to sell their house during that time, as they got out safely, or at the very least, less scratched.

So… Did you take advantage of the home buyer’s tax credit, and what did you think about it?

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  • Eileen says:

    We bought our first home 3 months after we got married and took advantage of the tax credit. The problem was that we weren’t aware of the three-year requirement. We should have done our due diligence, but we told our Realtor about our situation (we’re active duty military) and they didn’t tell us about the requirement, either.

    Of course, we PCS’d (Permanent Change of Station) about 8 months after purchasing our home. Thank goodness that our military legal experts on base knew about a military clause that exempted us from paying back the tax credit. We used it to pay off some of my high-interest student loans, start retirement accounts and establish an emergency fund.

    • Jim says:

      Hey I’m in the same situation. My extension got canceled so I will be leaving 2 years into the 3year period… could you tell me who you talked to and what was done about it? THANK YOU


      • Eric says:

        If you are military (or your spouse is) complete IRS form 5405… complete page 2, check the box on line 12. Include it with your return.

  • Rachel says:

    I think the First-Time Homebuyer Credit was a total waste of money. It just pushed all the home purchases that would have occurred over a long period of time into a short period of time. It favors people who were in a position to buy a house at that specific time over everyone else.

    Maybe I just don’t like it because I’m a 20-something renter that’s missed out on that perk and on many other government incentives. My boyfriend and I don’t have enough for a down payment yet (starter homes in our region are seriously 300k, so a down payment is a substantial chunk of change), but even if we did we wouldn’t buy because we’ll be moving back to our hometown within two years.

    In any case, I don’t think the government should be in the business of using tax payer money to try and help markets. If houses or cars can’t sell on their own then maybe those things shouldn’t sell. The age demographics of the nation are shifting and as a result there really isn’t as much of a demand for suburban lifestyles anymore. You can’t fix that fact with tax incentives.

    • MoneyNing says:

      Rachel, I wouldn’t worry too much. All the tax credit did was delay the inevitable price declines, which you still see happening across many over priced areas.

      Save money responsibly and pretty soon you will buy the house that you deserve in your hometown.

  • Jenna says:

    I’m still house hunting and wish that $8,000 was still available. It would help out a ton.

  • Gayle Abston says:

    Son just bought a house and got no tax credit. Is it too late to get any help?

    • MoneyNing says:

      As far as I know, the tax credit has expired. Don’t worry though, because the house price declined and benefited your son much more than if there was a tax credit in place.

  • Karin B says:

    I wasn’t able to get into escrow by 4/30/10 as I had hoped (to be able to claim the credit) & initially was very disappointed… but in the end I was thrilled that I didn’t, because the houses I was looking at literally dropped $25,000-$30,000 after that which was obviously a better deal for me than an $8,000 credit.

  • Josh W says:

    We bought a house and got the credit. However, the money is sitting in a savings account until the 3 years is up.

  • Chris-Jumbo says:

    I did not take advantage of the credit, we already own a home. For those that got it, I’m sure they are happy, but the Gov’t really shouldn’t be in the market of picking losers and winners buy propping up one industry over another. Automakers also got a boost from the clunker program.

    In the meantime, many business have continued to close their doors, because they weren’t in fact “worthy” of a bail-out. In reality, no one should get a bail-out.

    And although, paying down debt would be the best thing to do with the money, the Gov’t of course hoped the funds would be spent on new purchases like furniture etc.

    • Mz says:

      “No one should get a bail-out” okay not going to say that’s just dumb. We had no control over the big banks g(Wall St.) getting a bailout. So now the little guy (Main St) is getting a little something and you complain? I’m simply not understanding …it’s almost like whining because we’re getting a teeny tiny piece of the pie ….and saying no no….don’t give us any since you don’t believe anyone should be bailed out (but secretly you still know the rich were already bailed out) I’m sorry, I’m going to say it. That’s just dumb.

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