Is the $8000 Tax Credit for First Time Home Buyers a Boon or a Distraction?

You can't do a real estate search today without getting inundated with the $8000 tax credit for first time home owners. There is a frenzy as the credit is set to expire on November 30th.

Should buyers that qualify rush to the closing table or is the value of the credit overblown?

As the deadline nears, many buyers will feel pressured into acting on a purchase decision and not negotiate as well as they should. Is it possible that a buyer may be able to get a better price if there weren't a time crunch?

As an experience negotiator, I can say that when time was not on my side I generally couldn't get the best deal.

Now, let's compare the tax credit to a quarter of one percent difference in a mortgage rate that can change daily.

As an example, let's look at a $480,000 home with a $400,000 mortgage. If rates changed on us from 5% to 5.25%, our buyer would pay an additional $22,000 over the life of the loan. Yes, $8000 today might still be better than $22,000 over 30 years for some buyers, but for others that focus on the total cost of ownership of a home, a scant quarter of one percent increase in interest rate will suck the $,8000 and take another $14,000 with it. In fact that first year alone, that quarter of one percent will cost $1,000 in additional interest costs. Where would you focus?

For some buyers the $8,000 credit will be the last little bit that gets them over the hump, and that's a good thing. However since we are predominantly talking about first time buyers, it's just as likely they won't understand the impact of interest rates, negotiating well, or many of the other aspects of home ownership, and might get swept in the moment.

Let that perfect home be your call to action, not the hype. Make sure you speak to a knowledgeable real estate professional who can guide you and protect you every step of the way. I look forward to hearing from you.