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Don’t buy a home just for the tax credit

April 23, 2009

I was trolling the MSN Money Message Boards when I came upon a thread started by a couple that is considering purchasing their first home.

The biggest reason that I could glean from the post that they wanted to buy right now was to get the first-time homebuyer’s tax credit. Let’s face is $8,000 is an enticing sum of money.

However, it didn’t seem to me that the poster was being realistic about their situation.

The main problem was that both the husband and wife had very low credit scores, all three scores for both of them are below 600. Every situation is different, but the likelihood that a lender will give them a home loan isn’t very good right now. And if they do find a willing lender, the interest rate is going to be sky high.

Some posters suggested they look for an FHA (Federal Housing Administration) loan. While it is true that the FHA lending standards are different from going through a bank, even the FHA is going to take a hard look at their credit scores and financial situation. If you are applying for a government-backed home loan and your credit score is 660 or below, the government requires that you go through a housing counseling session with a HUD-approved (U.S. Department of Housing and Urban Development) counseling agency.

Advantage CCS is HUD-approved and offers these counseling sessions, known as “pre-closing counseling.”

I am worried that the new tax credit is causing people to lose perspective. It is a wonderful incentive for people who have strong credit scores and a decent down payment. It was meant to spur people to buy who are in the financial position to buy. It is not a good idea for someone who is not in the right financial position to buy a house just to get the tax credit.

If you get a home loan with a very high interest rate, there’s a good chance you will spend far more in interest payments than you would gain through the tax credit. And you can’t count on being able to refinance quickly. You could be stuck with that high interest for a long time.

If you are considering buying a home for the first time, call Advantage CCS to set up a counseling session to discuss your financial situation. A certified counselor will be able to help you determine if you are in a good position to buy a home. If you’re not financially ready to buy, the counselor can help you create a plan so that you will be able to buy a home in the future.

Written by admin · Filed Under Housing 

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