Buy a House for the $8,000 Tax Credit?

Last week I was a part of LifeTuner’s chat on personal finances. I had a great time and we discussed a lot of financial topics. One question asked was, should some buy a house for the $8,000 tax credit.

Even though several bloggers themselves were home owners, many of them encouraged waiting it out instead of just jumping in.

It seems like we aren’t the only ones talking about the topic. Many stories are running on the news about using the different tax credits before they expire.

How Much Does it Cost To Be a Home Owner?

So you might save $8,000 with the tax credit, but can you afford the additional costs of home ownership, especially when this is for 30 years or more (some bills don’t go away after your pay your mortgage)?

Consider these financial obligations:

• Homeowner’s Insurance
• Private mortgage insurance
• Home Association Fees
• Property Tax
• Maintenance & Improvement

Now think about this, use a mortgage calculator to run your numbers, and then decide if you’re comfortable with that amount of money being taken out on a monthly basis. If you’re a bit hesitant about make it work, then pass on buying the house. Don’t buy a house, thinking that you’ll get a raise in a year or so and then you’ll have more breathing room. It’s not worth your long term financial goals to use the $8,000 tax credit.

Focus on Your Net Income, Not Your Gross Income

Many realtors advise looking at spending no more than 28% of your gross income for your housing. Looking at just your gross income that would mean that a family with $60,000 could spend no more than $1,400/month on mortage, taxes, etc. It doesn’t sound too bad, but if you look at net income, you’ll see it becomes a bit tighter in the budget.

Running $60,000 through paycheck calculator for a married couple (I used NC as the state), we get a monthly net income of  around $3,800. That $1,400 is now 36% of your take home. This situation can leave you house poor. Buying a house out of your price range can wreak your family’s finances for years.

Buying a House is Just One Financial Goal

It’s easy to get caught up in the emotions. Remember, though, that buying a house is not the end all. Don’t sacrifice other goals for this piece of property.

What other financial goals do you have? Do you want to be completely debt free? Do you want to volunteer more often? Do you plan on having kids some point in the future?  Do you want to start your own business? Would you like to retire early?

If your paycheck has the majority spent on housing, what will you have left over for your other goals and dreams?

What If You Really Want a House?

You have three options to look at carefully before you make a decision.

• Be patient and wait. Give yourself more time to have a bigger down payment. This will lower your mortage loan amount you’d need. Prices could stay lower than normal with unemployment problems continuing.
• Focus on getting a starter home. You can still buy a home, but you might consider getting something a more inside your price range, so you have bigger amount of wiggle room. If you’re buying your first home, a starter home can a better option. You may upgrades years down the road or you might find you like the house and stay.
• Go for the home. If you’re in a position to get the home you want, that’s great. Just make sure you double check it is something within your budget. Otherwise, consider the first two options.

As you can see, while the $8,000 tax credit can be a nice bonus for some home buyers, it should not be the determining factor for you to buy a house.

Your Thoughts

If you’re a home owner, what advice do you have to share? Do you have any regrets any victories you want to share?

Note: I will be out of town this weekend and may not be able to access the Internet.

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