$7500 Tax Credit - "A Big Sham?"

It seems as though a lot of people have been poo pooing this tax credit after the media and bloggers alike found out that this was not a tax credit at all, but rather an interest free loan. Why would we take advantage of a tax credit, if in fact we have to pay these supposed savings back in full? It’s not savings if we have to pay it back, right? The government, real estate agents, and mortgage brokers have been flooding us with misleading propaganda about this tax credit for the past several months. Some have gone so far as to advertise properties with offers such as this: “Call for more information about $7500 in free closing cost assistance!” Interested home buyers call only to find out that, “Oh, its that stupid tax credit that every mortgage and real estate scum bag seems to be raving about!”

At this time, many members of the buying public seem to be pretty disenfranchised about this measure set by congress to spur up demand in the housing market. Are there any things that are positive about this tax credit even though you have to pay it back over 15 years at $500 a year? Of course! In this article, I will attempt to illustrate some positive ways in which you could leverage this opportunity to positively affect your finances.

Option #1 – INVEST IT!


Do you have a financial goal that is at least 10 years off? As a first time homebuyer or someone who has not owned a home in the past 3 years (those who qualify), I can imagine that you do! For instance: A child’s education, a down payment on a vacation home, retirement, etc. Take the entire balance of $7500 and invest it in an S&P 500 index fund that grows at a modest 10% a year on average. In 2010, start paying back the $500 dollars a year to Uncle Sam and let the rest grow. In 15 years, what will you have? You will have paid back Uncle Sam, and you will have $18,576.06 more than you would have had if there were no tax credit in the first place.

-Example of $7500 investment, paying out $500 a year after the second year. Assumes a 10% appreciation per year.



Option #2 – Go Shopping!

I bet you got excited when I mentioned shopping, didn’t you? Unfortunately, I did not mean shopping for just anything. Use some finances which would have otherwise gone to Uncle Sam this year and buy some high quality furniture and decorations for your new home! Ever heard that staging sells your home? If you put some money towards buying some timeless furnishings, it could definitely help when it comes to sell your home in the future. Besides, if you are a first time home buyer, your first house isn’t always your last. Probability dictates that you will most likely put your new house up for sale within 5 years or so.
A well decorated home usually sells faster and for more money, at least this is the case with real estate in Rochester, NY. The best part is that all that money that you spend on furniture and decorations doesn’t go to waste. You get to take those items with you onto your next home. After all, they are personal property! Don’t have a keen eye for decorating? Get in touch with a professional stager. One that I personally recommend is http://www.stagingsellsyourhome.com/ . No sense decorating your new home with ugly things that could hinder your eventual sale. A second opinion could help if you do not have a passion for decorating. Now you will have more enjoyment of your living space and it could pay off big time in the future!

Option #3 – Buy Life Insurance!

This is probably the last option that you wanted to hear, but it may be the smartest. “Life insurance? I don’t have any kids, I’m not married, so why the heck would I need life insurance?” As an agent who specializes in working with first time homebuyers, I hear this a lot. My retort to this objection is, “Do you plan on getting married at any point in your life? Do you plan on having kids at some point in your life?” If the answer is yes, then you will inevitably buy a life insurance policy at some point, that is, if you are a responsible human being. So why not contribute to a policy when you are young? When it’s cheap? In addition, a comprehensive policy will build substantial value over time. If you do not understand the ins and outs of life insurance, be responsible and educate yourself; call your local agent.

If you have any questions, suggestions, or tips concerning this $7500 tax credit, please feel free to contact me at mattdrouin@nothnagle.com

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