The first attempt to give a credit to home buyers last year seemed very

limited in benefits. I looked at it as an interest-free loan that had to be

repaid.  The accounting alone would discourage buyers about taking it.

With the new American Recovery and Reinvestment Act of 2009 comes a

new first time home buyer program. The following chart provided by

NAR gives an overview of the changes and benefits.First time home buyer tax credit

Let’s do an analysis on buying 3 different homes:

Starting with a home with an $80,000 loan, then $150,000 loan and finally,

a $300,000 loan.

Remember you must be a First Time Buyer [or not owned a home for 3 years]

and make less than $75,000/yr for a single owner and $150,000/yr for a


The examples are estimates based on an estimated 10% down payment with

PMI(Private Mortgage Insurance).

Other loan terms and down payments are available and will cause these

calculations to vary. Call me & we can see how it will impact you specifically.


Hypothetically, you just bought a home for $88,000, with $8000 down.

Loan               $80,000

Int Rate              5.5%                  Payment    454.23

Taxes                 1200                  Tax / mo   100.00

Insurance             500                   Ins / Mo     41.67

PMI                     420                    PMI/ MO    35.00

Total payment per month                             $630.90

Now, what is the best way to use your $8,000.00 credit?

Option 1: Increase your Federal Income tax deductions with your employer

paying in $8000.00 less in taxes and use the extra money to make

the payments for a year and live in your new home for free for the first year.

Option 2: Increase your deductions so you pay in $8000.00 less in taxes.

Send the extra money into the principal on your mortgage every month.

With the additional payment to principal you will reduce the term of the loan

by 6 years, saving $26,000 in interest over the term of the loan. Potentially

paying the loan down far enough that you can ask for the PMI insurance

to be removed, since you now have an additional 10% payment to principal.

Option 3: Save the money and get less than 1% interest, currently.


The same comparison of Option 2 for a buyer with a $150,000 loan: it reduces

the loan term by 3.5 years and saves $28,800 in interest over the life of

the loan.

The same comparison of Option 2 for a buyer with a $300,000 loan: you

reduce the loan term by 1.8 years and save $29,700 over the life of the loan.

However you decide to use your $ 8000 tax credit, as long as you stay in the

home for 3 years there is no penalty or payback. At the very least, you are

ahead by $8,000 and you could have an additional $26,000 to $29,700 in

interest savings on the life of your home loan.


If you were hesitating about buying a home, this should encourage you buy

a home soon.  I would be delighted to discuss the 2009 Tax Benefits to you.

***This analysis is based on estimates I have made based on real estate taxes,

Interest rates, Insurance premiums  will vary based on the home you select.


Grand Rapids Ada Real Estate ~ Westbrook Realty

Copyright 2009 All rights reserved