According to a post on Aubrey Cohen’s P-I blog Seattle Real Estate News, State may give buyer credit as temporary loan.
First-time home buyers would get their $8,000 tax credit as a state loan at closing, under a measure the state Senate Ways and Means Committee approved Wednesday night.
The federal government is offering the credit to first-time buyers who buy a home through November, but won’t pay the credit until after buyers file this year’s tax return. Under the new budget amendment, which State Treasurer James McIntire wrote, buyers would get the money as a loan at closing, meaning they could use the money for down payments, then pay it back when they got their tax refund.
As you could probably guess, this is being pushed for by the Washington Realtors and Lennox Scott.
As it is currently executed, the $8,000 first-time homebuyer tax credit is not able to influence the price of homes that are purchased, since it is not received until up to a year after the actual home purchase was made.
If the state starts handing out the $8,000 during the purchase, that money is immediately tied into the house. With homes continuing to depreciate (at an increasing rate), by the time the actual credit is received from the IRS and paid back to the state, the equity will likely be gone. $8,000 down the drain.
In contrast, if the homebuyer is forced to practice the lost art of delayed gratification, when they receive their $8,000 government handout in 2010, they will be able to invest it, maybe buy some furniture, or—here’s a crazy idea—save it.
Also, who knows what the homebuyer’s situation will be by the time they actually file their 2009 taxes next year? What if they end up owing some money, and they don’t get the full $8,000 from the IRS in an actual check? If they pre-used that money to buy a bigger/better house than they otherwise would have been able to, it is unlikely they will have saved much in the interim to be able to pay back the state. Or what if the homeowner loses their job? If they had not pre-spent the $8,000, it could have been used to tide them over for a few months on their shiny new mortgage.
All in all, this is a terrible idea. Shame on the Washington Realtors (the organization, not necessarily the individuals) and Lennox Scott for encouraging more of the same the type of irresponsibility that got us into this mess in the first place.
(Aubrey Cohen, Seattle Real Estate News, 2009.04.17)