On April 30, the Federal Government ended their Homebuyer Tax Credit. But just because they took away the punch bowl doesn’t mean our little party has to come to a screeching halt. We can make OUR OWN interest rate and tax credit stimulus plan!
In an excellent article in You Magazine, national mortgage expert Jim McMahan (Director of Training and Education at LoanToolbox, a company that advises mortgage professionals), describes how the terms of the purchase contract can be structured in such a way as to save the Buyer thousands of dollars, get a lower rate, and provide a tax incentive at the same time.
What I found interesting is the fact that a recent survey showed most Buyers feel lower rates are more important than a tax credit in helping them decide to buy.
In fact, 65% said the end of the tax credit will have NO EFFECT on their interest in purchasing a home! It’s the lower rates that is bringing them into the market for homes.
The article goes on to say what good negotiators have known for a long time – there are many ways to purchase a home with dramatically differing effects on downpayment, monthly payment, and tax credits.
While most Buyers focus only on the purchase price, that is only one of the factors in a well-negotiated contract.
As usual, you need to involve people who have experience in structuring these types of deals and, before you count your tax refund dollars, you should contact your tax professional about your particular situation.
Shashank Shekhar at Arcus Financial, my friend who sent the article to me, is well aware of the ways to use financing to tailor a transaction to your personal needs – and knows which kinds of properties will allow it.
Here is an excerpt from the article itself. It shows you how Seller credits can be used to provide tax reduction to you!
However, one aspect of this situation not often considered is that the IRS treats points paid up front to lower a mortgage interest rate as pre-paid interest, regardless of who pays the fees. This means that when buyers negotiate to have the seller pay the costs to lower their interest rate, they receive the benefit of deducting them on their income taxes in the year the home is purchased.
If the costs to reduce the interest rate are 2.00% to obtain a lower interest rate, the $5,400 in this scenario, 2.00% of $270,000, would be deductible as pre-paid interest, netting additional money back to the buyer at tax time.
Pretty good, huh?
I have used these types of contract options to help not only first-time Buyers, but on my own properties as well. It is all about addressing your partucular needs, whether it is monthly payment, down payment, or getting help with repairs.
Now, we can go out there and make our own “Stimulus Package” - and it won’t beome old and gray waiting for Congressional approval!
Related posts:
