real estate

First-time homebuyer: Pay with cash

Steve McLindenq_v2.gifDear Real Estate Adviser,
I read your recent column on the $8,000 tax credit for the first-time homebuyer and was wondering if that is applicable to those buying a house on a cash basis. Also, last I heard, the program expires Nov. 30. Do you know if those incentives will be extended into 2010?
-- Jason

a_v2.gifDear Jason,
Firstly, cash buyers indeed qualify for the $8,000 first-time homebuyer tax credit, which is an offshoot of the American Recovery and Reinvestment Act of 2009. Because this is not predicated on participation in a mortgage program, cash in hand will stand and no doubt give you more negotiation clout.

And yes, the tax credit program was extended last month! It now applies to qualifying buyers who sign a binding contract for a home by April 30, 2010, and who close by June 30, 2010. So now you have a little more breathing room -- and latitude -- to act, because the program also has been expanded in breadth and scope.

A separate $6,500 tax credit is now being offered to people who have owned their current homes for at least five years and who want to trade up to another primary residence. Additionally, our brave folks in the uniformed services and intelligence community serving abroad will get an extra year beyond the June 20, 2010 date to close on a principal residence.

More good news: Annual income limits for qualifiers have been bumped up from $75,000 to $125,000 for individuals and from $150,000 to $225,000 for couples. The extension and rule changes were no doubt designed to expand housing demand from the low end of the market to the midmarket and to sustain the momentum the housing market was gaining in 2009 by shifting some of the anticipated housing demand in the second half of 2010 year into the first half of 2010.

So you might as well take advantage of the government largesse in this extension, which will cost the Fed a whopping $10 billion! There are no guarantees it will be extended beyond mid-2010.

Be sure to first consider a few noteworthy wrinkles. Those who sell their new home acquired under the tax credit program within three years of buying it would have to repay the credit, as would those who stop using the home as their main residence in that same span. The credit does not apply to those buying higher-dollar homes worth more than $800,000. Remember, qualifiers will get up to a 10 percent credit that is capped at $8,000 on their purchase price.

Good luck in your home purchase!

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Read more Real Estate Adviser columns and more stories about mortgages. To ask a question of the Real Estate Adviser, go to the "Ask the Experts" page, and select "Buying, selling a home" as the topic.

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