New Housing Bill Provides Help, Quid Pro Quo Attached in Fine Print

By: Alicia Schuller, Marketing Coordinator, NHS of Baltimore

After much debate, deliberation and political strong-arming, Congress passed the Housing and Economic Recovery Act of 2008 last week, in hopes of providing a windfall for thousands of Americans suffering from the current state of the economy and housing market.

The new bill will surely have a large affect on many of our clients here at NHS of Baltimore, especially clients looking to purchase their first home. One of the largest provisions in the bill provides a tax credit for first time homebuyers, of 10% of the total principal of their mortgage—up to $7,500. New homebuyers who opt to take this credit will receive a check, minus the difference of the taxes they owe at the end of the year. If you owe nothing, you receive the full amount. Spelled out, a free gift from the federal government.

But Wait. This isn’t the same kind of gift as the stimulus we all received in our mailboxes earlier this year. Quid pro quo— recipients are expected to pay this one back. Buyer beware, although the tax credit stands to help a great deal of people on their way to owning a home, it essentially adds more than $7000 to their debt load.

However it is important to point out, there is some leniency. The tax credit has no interest rate and the amount given is the amount owed back. Furthermore, recipients will have15 years to pay it back through a $500 surcharge on their taxes each year until paid.

The question is really a personal one. Are you, the homebuyer willing to add more onto your debt load and can you handle it? Will the extra $500 dollars on your taxes at the end of the year be an unbearable burden or a just a small price to pay for the help you’re receiving now?

Commenting on the provision, our own Cheryl Cassell, Assistant Director of Single Family Programs, said, "first time homebuyers should proceed cautiously with regard to the tax credit. They should fully understand the details and understand that although it has been labeled as a tax credit, it is really an interest free loan".

NHS of Baltimore began offering mortgages for first-time homeowners earlier this year through the Community Development Administration of Maryland and Neighborhood Housing Services of America. Our goal is to offer truly affordable mortgages that are sure to fit our client’s needs and debt capacity. Our housing counselors will advise clients on a case by case basis whether it would be prudent to accept the tax credit, based on their current financial ability to withstand more debt.

Will you be accepting the federal government's tax credit? Weigh in on our poll.