A $7,500 tax refund? Better read the fine print.

Congress passed and the President recently signed into law H.R. 3221, the Housing and Economic Recovery Act of 2008.  There is a lot of good stuff in it, including all mortgage originators (including those that work at banks and credit unions) must register in a national registry.  But there is one part of the Act that might be embellished by originators to generate more loans.

The Act provides for a First Time Homebuyer tax credit of 10% of the purchase price or a maximum of $7,500.  Sounds great, and it is a good thing.  But just like a piece of cake that is tasty and delicious, there are calories to count once you eat it.  The calories for the tax credit is you have to pay the tax credit back to Uncle Sam.  It is not a freebie.  You have to pay the entire tax credit back with $500 added to your taxable income until paid back or if you sell your home and earn a profit, you pay back the remaining tax credit balance. 

I anticipate for the next 6 months you will see many ads from mortgage originators and real estate agents saying “Buy a home today and get a $7,500 tax refund!”  Will the rest be disclosed once the new home buyers are at the agent’s or originator’s desk?  I hope so.  But logic tells me this is another buyer beware and many first time homebuyers will be lured into buying a home based on only a half disclosure.  If you have any questions on this, please call or comment on my site.