The $7,500 Housing Credit

So this is a quick one. People who are looking to buy a first home may have heard about legislation that is offering a $7,500 tax break to home buyers who haven't owned a home during the past 3 years.

On the surface this is really something to perk your ears. $7,500 can go a long way toward closing costs, down payment, etc. Frankly, I was almost ready to seriously consider looking. Then... i read the fine print.

In short: It's not a free money gift per se, it's really a $7,500 loan 0% loan. You need to pay back $500 a year at tax time over 15 years. Total interest on a $7,500 loan over 15 years at 6.5% is really $4,260.

Woha.

So I originally was going to make a post on how a zero interest loan on $7,500 really isn't that big of a deal. However, if you view the $7,500 tax credit as really a $4,260 tax credit over 15 years ($478 the first year), it's actually not that bad.

I'm glad I did the math! We'll see what happens this spring...