7,500 reasons to buy a home

JACKSONVILLE, Fla. – Sept. 18, 2008 – Two big-ticket purchases are coming up for Spencer Craven and his fiancee. They're buying a townhome and having a wedding.

Which will cost them more this year?

"Oh, I don't know," Craven said with a laugh. "I'll let you know after it's done." He said he's certain of one thing. The recently enacted $7,500 federal tax credit for first-time homebuyers has gone a long way toward making it possible to purchase a Pulte Homes townhome in Bartram Park and also stage a memorable wedding.

"We're getting married in April so getting that tax credit right before our wedding was a decisive factor," he said.

Signed into law last month by President Bush as part of a bigger housing bill, the federal tax credit is aimed at luring fence-sitting homebuyers back into the real estate market.

The law defines first-time homebuyers as those who have not owned a home used as their main residence for at least three years. The tax credit is for the purchase of either new or existing homes purchased between April 9 of this year and July 1 of next year.

The tax credit is a refund from Uncle Sam. For instance, if someone owes $2,000 in income taxes, the $7,500 tax credit would wipe out that amount and the federal government also would send out a $5,500 check. If the taxpayer owes nothing at tax time, the check would amount to $7,500.

The rub is the tax credit must be repaid over a 15-year period to the federal government. According to the National Association of Home Builders, the tax credit is best described as a zero-interest loan.

Realtors and home builders have been learning about the tax credit to answer questions from buyers.

"I think the word is actually just getting out there," said Pete Dalton, a Realtor with Vanguard Realty Inc. GMAC in Clay County.

He said getting the tax credit will help first-time buyers make down payments without having to tap their savings.

"It gives people the confidence to buy when they have the ability to buy," he said.

The tax credit is the newest incentive for homebuyers, but it's not the only one available, or even the best deal. In Northeast Florida, counties offer help by using state housing funds.

The city of Jacksonville, for instance, provides $15,000 for first- time homebuyers. Unlike the federal tax credit, there is no obligation to make annual repayments. The financial obligation disappears entirely if the buyers remain in the home for 15 years. If the home is sold before that milestone, the owner must use proceeds from the sale to pay back the $15,000.

This year, the city has used the program to assist 200 home buyers, bucking the overall drop in home sales, said Wight Gregor , director of the Department of Housing and Neighborhoods.

"Our program is still going gangbusters," she said. "We have a good supply (of affordable homes) and I think we have good incomes in Jacksonville -- people who are home-buyer ready." However, the city's program is limited to buyers who earn less than 120 percent of the area's median income. For example, a family of four would be eligible if its income is less than $56,000 a year.

Homebuyers must be pre-approved for the program, undergo review of their financial situation, and attend homeowner classes. Gregor said if prospective homebuyers have too much existing debt for accounts such as credit cards and car loans, they won't be able to get the assistance.

The $7,500 federal tax credit has a higher income ceiling for eligibility. Single taxpayers can get the full tax credit if their incomes are less than $75,000. Married couples will qualify with incomes up to $150,000. The tax credit phases out for higher-earning homebuyers and goes away entirely for single taxpayers earning more than $95,000 and married couples $170,000.

Homebuyers don't have to take any classes to qualify for the tax credit. But like any other financial obligation, homebuyers should make sure they can afford to repay the tax credit so they avoid being hit by the Internal Revenue service with penalties and interest.