Here’s the way the $7,500 new homebuyers’ credit works (I am not a tax accountant or tax attorney, so do not rely on this information in any way shape or form.)

If you haven’t bought a home before, you will be able to take a $7,500 tax credit when you file your 1040 next year. This will mean if you had more than $7,500 in income withheld for taxes, you’ll get up to $7,500 back. It is subject to limitations, restrictions, etc.

That’s exciting. You’ll get a lot of money in your pocket you wouldn’t have, otherwise. You buy a home for less money than it would have, a couple years ago, and increase home sales volume while reducing the housing inventory, which helps the US in these uncertain times. As an added bonus, you’re probably going to go out and spend that $7,500, saving the US economy from a recession / depression. Thanks for that.

As you’ve probably read elsewhere, though, this isn’t so much a “credit” as a “loan”. As in, the US government is gonna want that $7,500 back.

They’re going to put you on an installment plan, though. So, just as you are paying back the purchase price of your home over 30 years, you’re paying back the $7,500 credit. The good part is, it’s tax and interest free.

This is all a long-winded way of saying, here’s a column written by Michelle Singletary, discussing one borrower’s thought process before deciding whether or not to take the credit.

From the Washington Post:

“I’d like to see you write a follow-up on who should take advantage of this credit,” wrote Liz Kiser, who lives in Oklahoma. “Being that it’s a loan, it obviously isn’t going to be economical for everyone.”

“I am not in any way struggling to pay my mortgage and I don’t have credit card debt,” she wrote.

So should she take advantage of this loan anyway, she wanted to know.

“Sure, I need a lawn mower and I wouldn’t mind the boost in my savings since my down payment wiped me out, but is this tax credit really economical if I don’t really need the money for anything except immediate gratification?”

I didn’t find her final decision to be surprising.

I’m all for getting money for “free”. But spending money now that needs to be paid back in the future is always a step worth not taking, whenever possible.

Source: Think of Tax Credit as 15-Year Loan, And Rethink Whether You Need It – By Michelle Singletary, The Washington Post

Also: Before You Take That New Housing Credit – By Michelle Singletary, The Washington Post

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