Savings Splurge: Local Experts on Federal Tax Credits

THOSE ASPIRING TO own real estate who didn’t think they’d make the deadline for a tax credit now have eight thousand more reasons to buy: On Nov. 6, the government extended the $8,000 tax credit for first-time homebuyers for another six months. Instead of expiring on Nov. 30, buyers now have until April 30, 2010 to sign a contract for a home.

In addition, the Worker, Homeownership and Business Assistance Act of 2009 authorized a tax credit of up to $6,500 for existing homeowners trading in for new digs. Both credits are aimed at getting people who would have bought a place in the next few years to hurry it up a little. The government’s hoping that driving up home sales will help shore up the economy.

We checked in with three people you’ll be seeing a lot of if you decide to take advantage of these deals — a Realtor, a mortgage expert and an accountant — to find out how you can maximize your financial savings if you decide to buy.

Lindsay Dreyer, Realtor with Hounshell Real Estate (Citychicrealestate.com, 202-470-0737)

» EXPRESS: How has the [first-time homebuyers'] tax credit affected business?
» DREYER: I would say that during the past year, about 50 percent of my clients definitely got off the fence [and decided to buy] because of the credit.

» EXPRESS: So, was there a sense of panic among your buyers, as the first-time homebuyers’ credit was set to expire on Nov. 30?
» DREYER: Yes. It’s human nature to procrastinate; I would say in the past month or two there’s definitely been an increase in people interested in purchasing. As far as inventory, compared to last year, I would say the quality and quantity have definitely gone down. If you find something in really great condition, priced well, it sells within a week and often times there are three or four offers on the property. There are a lot of buyers out there, and they’re always looking for a deal.

» EXPRESS: Why all the fuss over $8,000, anyway, when it’s maybe two percent of the price of a home?
» DREYER: I think it depends on people’s situation. As long as you’re within the income limits, it’s almost like free money. If you look at the average price range I’m working with — about $300,000 — that tax credit pays for four months of their mortgage. That’s pretty decent. It could pay for furniture, anything. I would probably buy, too. The credit is aimed at getting people to buy … who were planning on buying within the next year or two. It’s not necessarily convinced people who would never have thought about it.

John Goulding, regional sales manager at Wells Fargo’s Fairfax office (Wellsfargo.com/mortgage)

» EXPRESS: How can buyers save a little bit of money, even without a tax credit?
» GOULDING: One of the things that’s very important is the customer should be aware of what their credit report looks like. That tells us what their ability to repay is, and it allows us to assess the risk associated with that client. I strongly recommend they meet with a home mortgage consultant, or loan officer, to go through the steps necessary to see what they could qualify for.

Number one, we look at credit scores. Better credit scores allow for better pricing, which may mean a lower payment over the loan. Number two would be beginning to think about how much money [the buyer] needs for a down payment, and number three would be to take a look at the monthly payment they’re considering. Then, most importantly, [the buyer should] make sure that the an officer understands the customer’s long term goals.

» EXPRESS: What can buyers do to make sure the process goes smoothly at the first appointment?
» GOULDING: If they set up an appointment, they need to bring their pay stubs, three months of bank statements, a copy of their credit report, if they have it, and anything else we need to be aware of that would enable us to make a financial decision. [That usually means] their employment history, what they have in credit, what more they need to save.

Brian Davis, D.C.-based Certified Public Accountant (Briandaviscpa.com)

» EXPRESS: Let’s say you spring for your first condo and want to receive a tax credit. What paperwork should you give your accountant in April?
» DAVIS: Bring the settlement sheet, the HUD-1. And [for the other deductions] bring the mortgage interest statement you get from the bank — the 1098. And if your property taxes are not escrowed by the bank, you’ll need your receipt for that.

» EXPRESS: Besides those federal credits, what other tax benefits come with owning a home or condo?
» DAVIS: [Since mortgage interest is often what pushes a taxpayer's itemized deductions higher than his/her standard deduction,] homeownership usually opens up the ability to deduct other items: state income taxes, personal property tax and charitable contributions.

» EXPRESS: What kind of numbers are we talking about?
» DAVIS: This is really hypothetical, but figure a $300,000 condo. Let’s say you put ten percent down, so you have a $270,000 mortgage with 6 percent interest over 30 years, or $1618 a month. About 90 percent of that will be interest your first year, so you’re looking at $17,000 in deductions. Compare that to your standard deduction. If you’re married, the standard deduction is around $11,000 [resulting in a $6,000 deduction on your tax return].

Written by Express contributor Rachel Kauffman
Photos by Lawrence Luk for Express