Daybreak Down Payment Option: First-Time Home Buyer Tax Credit

While Utah has so far enjoyed a relatively small decline in the residential real estate market, many other states have not fared so well. With the strict standards in place for mortgage qualification and the lack of plentiful buyers home values have dropped quite rapidly. In light of this crises, the US government has made efforts to intervene and boost the economy. One of the facets of their efforts is the First-Time Home Buyer Tax Credit. For those who would like to purchase a home in Daybreak any time soon: listen up.

The First-Time Home Buyer Tax Credit is not an actual tax credit. A tax credit is when the government either reduces your tax liability or increases your tax return dollar for dollar. The name sounds like it is free money. It is not free money. However, this does not mean that you should not consider using this program. The First-Time Home Buyer Tax Credit is actually an interest-free loan. You pay the loan back via your taxes for the next fifteen years. At this point you may be asking - is it worth it? My answer is definitely yes.

If you understand the time value of money you will know that a dollar in 1993 was worth more than a dollar now in 2008. Why? Because it had more buying power. It could buy you more bread, electricity, even gas. (Actually then it could buy you about one gallon) That was 15 years ago. In short, while you will have to pay every cent back to the government in the next 15 years you will gain a lot of value with this deal.

The maximum amount that you can qualify for is 10% of the value of the home you intend to buy with a cap of $7500. So if you buy a home in Daybreak you will qualify for the full amount. You can even use the tax credit as a down payment for your new home if you work it right. You get the benefit of the tax credit after you file right? Yes, however, right now FHA financing requires a minimum down payment of 3.5%. On a $250k purchase that is $8,750. The FHA allows a buyer to borrow money from family for down payment. This means that a first time buyer could borrow the down payment from relatives, make a home purchase, then use the tax credit to pay back all or a portion of the borrowed funds.

If your still not sure, consider this: assuming an interest rate of 7%, the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. If you are still a little worried about the housing market in Utah consider this: if it goes down further and you are forced to sell, then you will not have to pay back the government for the tax credit "loan." So if you are on the edge, it would probably be a good idea to jump off before the July 1st, 2009 deadline.

First-time Home Owners in Daybreak

I have talked to a lot of potential first-time home owners in Daybreak. You see them all the time. They are walking through the parks, at the visiting center, walking out of the model homes, and driving slowly while their heads swivel looking at the houses. These prospective buyers have been passed up by the whirlwind of appreciation that has lifted the Utah housing market in the last 5 years. If these couples had been old enough or bought at the right time, then they would have nearly 100,000 in equity to put down on their new house in Daybreak. As it is they can barely make a 3% down payment. For the most part, these seem to be honest hardworking people who just missed the boat. Many of them can no longer afford some of the town homes in Daybreak let alone an actual house. Because of this we will see a dramatic shift in the demographics of Daybreak. The main difference will be between Eastlake and Founder's Village.

Founder's village contains those original residents of Daybreak. These families bought their homes when the starter homes were going for the mid 100s. At the time you could buy a house with an income of just over 40,000 a year. Yes, two teachers together could easily afford to live in Daybreak. The down payment required was half what it is now. These "starter" homes are now selling between 265 and 330. Well out of the price range of the aforementioned teachers. These young families moved in at the right time. The 1100 kids that go to Daybreak Elementary are a testament to the demographics of Founder's Village. Eastlake on the other hand might be altogether different. Are young families still moving into Eastlake? Yes they are, but not near as many. Are these possibly teachers or blue collar workers? Not unless they were able to get in on the equity from the housing boom. No, these will be families that have already owned homes for a few years or have high incomes relative to the average income in Utah. Essentially these families are more likely to be established and have older kids. This will bring a whole new demographic to Eastlake. Instead of toddlers running around in the splash pool you might find teenagers running around the new swimming pool or lake.