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First-time homebuyer credit: How big a deal is it?

You can use the money for all kinds of things. One young couple used it to buy peace of mind.

By Karen Datko Mar 10, 2010 11:47AM

This post comes from WC Porter at partner blog Wise Bread.


After two years, more than 80 viewings, and almost breaking up with our broker, we finally bought our first place.


It's been a saga but we finally got it done. And as someone who has been looking for this long, I can tell you that we were pressured every step of the way to just buy something -- anything -- because it was the "perfect" time to buy. This had to do with prices coming down and interest rates being low.

But the best reason to buy was always President Obama's first-time homebuyer's tax credit. It would give us $8,000 in cash to use however we pleased after we closed on the home. This deal was the greatest thing since the Snuggie and we would be stupid not to take advantage of it.


When the credit was set to expire at the end of November last year, we felt the pressure from our broker: We were about to lose out on the best time ever to buy a first place. But as Wise Bread readers know, we didn't have the money back then. Luckily for us, the credit was extended.


Using the credit as a down payment. Not all homebuyers use the credit the same way. Some of them save it, some of them spend it on furniture for the new place, and others use it as a down payment toward the very house they're buying in order to get the credit.


That's right: In some mortgages you can use the credit as part of your down payment and put it toward the house. This seems kind of fishy to me because you don't even have the money yet -- but if you're really strapped for cash and this is the only way you can put money down or cover closing costs, then by all means do what you have to do.

But if you're in that bad a shape, maybe you shouldn't be buying a house to begin with.


Fixing up the place. Another option is to use the newfound cash to furnish your place, paint, etc. Starting anew is exciting, and giving the place a personal touch is part of the dream of owning a home. After all, you just put a lot of money into the place and you're probably feeling a little light on funds. So having some found cash makes it easy to go out and spend even more on it.


Isn't that the American way?


Building your savings back up. This is what we're going to do. We spent years saving as much money as we possibly could and now we're seeing most of that hard-saved money disappear as our down payment. Poof -- gone. Just like that.


The best part of having a large amount of cash sitting in an FDIC-insured account is peace of mind. And not have that money there anymore is very tough psychologically -- the cushion is not nearly as big as it once was.


What did that big cushion mean? It meant that the idea of one of us getting fired from our jobs was a trivial thing. Both of us losing our jobs at the same time? Eh -- we were covered.


But now we have a mortgage to pay and the majority of our savings is gone. We still have an emergency fund, but if either of us lost our jobs we'd feel very stressed. We feel stressed already!


And this is where the $8,000 tax credit is a boon to us -- it's going right back into our savings account to help build it back up to what it was.

For us, the tax credit gives us the greatest thing money can buy: peace of mind. Without it, we'd probably still be buying this place, but we would also be more stressed out and statistically more likely to default on our mortgage. So for that I say thank you to the Obama administration. I don't know if the credit help the economy out of its doldrums, but it's definitely helping me and my wife.


I'm curious to hear from other people who have qualified for this or other home-buying tax credits recently and how the credit played a role in their purchase.


Related reading at Wise Bread:

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