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Who Cares If I Miss Out On The Tax Credit?

$8,000 Can Go a Long Way

Many people who are looking to buy a home now NEED the Tax Credit to close a gap in their finances.  But not everyone feels that way.

As the days tick away, I have started to hear some buyers already begin rationalizing why they have not yet gone to contract.  They say things like, “$8,000 isn’t enough money to rush me into buying a home”.  I am not sure they are right (especially as you see interest rates on the rise at the same time), but I do know that the people who “discount” the impact of $8,000 need to open their minds to some “out of the box” thoughts.

Here’s One Thought Process

If a customer had sufficient monies to close and cash reserves in the bank after closing such that they didn’t NEED the $8,000, as they contend, I would propose to those clients this strategy:  Pay $8,000 in additional Discount Points on your mortgage! You see, by doing this our buyers gain two benefits:

  1. As I am sure we all know, Discount Points are tax deductible as prepaid interest on the mortgage.  That means our Buyer (assuming a 28% top Income Tax Bracket) will receive a $2240.00 higher tax refund next year…..that’s good!
  2. By paying 2 points on a $400,000 mortgage (cost $8,000), our borrower is likely to receive approximately a .50% lower interest rate on their mortgage.  Over the course of the first five years of homeownership, they would save nearly an additional $8,000 in monthly mortgage payments…that also is good!

Or How About This?

By paying the points for a lower rate, you would reduce your Principal & Interest Payment about $132/month on your $400,000 loan.  If you were comfortable with your original payment, you could actually borrow an additional $20-25,000 for the same payment.  That’s $20-25,000 that you could put into a 203K loan to finance home improvements OR it’s buying the bigger house OR buying in a better part of town….for the same payment you were willing to accept without the tax credit.

Here’s Another

$8,000 is enough money for a skylight, a living room set, a large Jacuzzi/hot tub, a deck, an awesome barbecue, an above ground pool, a plasma television or one of dozens of other cool things you might want to add to your new home.  Or maybe, it’s the money for a vacation or a top notch House Warming Party.  Whatever you spend it on, it’s basically a FREE GIFT from Uncle Sam.  How many great moments or memories can you “buy” with this gift of $8,000?

Okay, One More

$8,000 untouched in a conservative investment (like Savings Bonds) at 6% would compound to more than $25,000 in 20 years to help pay for college, a wedding, or a car.  In 30 years, when you retire, it would blossom to more than $46,000!  That’s a lot of trinkets for your grandchildren.

Remember, this is money you didn’t need.  This is money that didn’t provide sufficient incentive to force you to BUY NOW.   Don’t be silly, take the money and enjoy it!  Save monthly, improve your home, improve your lifestyle, or improve your future.  Any way you look at it, $8,000 can go a long way.

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4 replies
  1. Rob Rosa
    Rob Rosa says:

    Makes so much sense. I still don’t understand some of those comments I have from prospective buyers. Don’t sweat the small stuff (a $350 hot water heater), sweat the $8,000 you stand not to gain…Thanks for the article!

  2. Thomas McGiveron
    Thomas McGiveron says:

    I have to say this. I have been working tirelessly to improve how I do things – to become a great agent (still working hard on that). I go back to 3 years ago when, thanks to Paul Musso, I came to one of your first seminars at Continental Home Loans. I remember THEN, you talking about…everything. You’ve been spot on – from talking about good agents needing to become great and the RE market…everything.
    Since then, I’ve met Dean Hartman and I’ve learned so much I can’t even begin to mention it all – from REALLY joining the facebook revolution(which I really understand now) to benefiting IMMENSELY from the KCM Powerpoint presentations!
    PS – your blog here is awesome – and I love the addition of Dean…who knew he could write like he works for the NY times! LOL.


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