Before deciding to plunge ahead with a first home purchase, renters should consider several factors, the first of which is how long they plan to stay in the community.
Under the regulations for the First Time Buyer Tax Credit, a buyer must remain in the home for 3 years. If they move before that time has passed, they will be required to return the $8,000. This alone could create a hardship. And as we all know, owing the IRS is not something we want to do.
In addition, because during the first few years of a home mortgage most of the payment goes to interest, they’ll have little equity in the home if they sell. And selling takes time. Depending upon the market at the time, they could be looking at several months on the market.
Thus, if they need to move because of a job transfer, until the house sells, they’ll be stuck with a mortgage payment as well as rent on a home or apartment in their new location.
Next, renters need to decide if they’re ready to take on the responsibility and expense of home maintenance and repair. As a renter, if the plumbing starts having problems or the furnace goes out, they simply call the landlord to have the problem fixed. As a homeowner, the responsibility belongs to them. Not everyone has the resources or the desire to deal with those expenses.
Many landlords set aside 10% of the rental income for repairs. New homeowners would do well to set aside 10% in addition to their mortgage payment as a fund to tap into when repairs are needed. Will that fit the budget?
Homebuyers might do well to stash that $8,000 in a savings account as a cushion to fall back on when maintenance and repairs are necessary.
The next thing to look at is monthly cost. Right now census bureau figures indicate that over 11% of all rental properties are vacant. That means that in several areas of the country, renters can find bargains on good properties. While they aren’t earning any equity as renters, it does afford an opportunity to set aside funds for a respectable down payment when the time is right to buy.
No one should rush out to buy a home simply to get the $8,000 First Time Homebuyer Tax Credit. First, decide if the time is right and if it makes financial sense. If the answer is yes, then the credit is a nice gift.
Author: Mike Clover
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