Tax Guide

Home buyers' tax credit can add money to your paycheck

Posted February 5, 2009
Updated March 9, 2009

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— The down economy has made it a good time to buy a house, but economic fears keep many from taking the plunge.

Federal, state and local authorities are offering loans and tax credits to help allay those fears and get the home market moving again.

State adds new tax credit for first-time home buyers State adds new tax credit for first-time home buyers

"There is a misconception that lenders don't have money to lend, and that is not reality," said Sharon Drewyor, director of home-ownership lending for the North Carolina Housing Finance Agency.

"Having been in the industry for 26 years, what better time to buy?" she asked.

Will Hartye bought his first home in August. He took advantage of a program that Raleigh offers to first-time home buyers looking in revitalization areas.

"I still don't think it's sunk in quite yet," Hartye said of being a homebuyer.

Federal and state governments have made their own offers to sweeten the deal even more for first-time buyers.

Through July, the federal government has authorized a $7,500 housing credit – but it acts more as a zero-percent loan than a tax credit. You get the lump sum when you file your taxes, but have to repay it at $500 a year for 15 years.

On Thursday, Gov. Bev Perdue approved a measure that might help first-time home buyers even more – the Mortgage Certificate Credit, an annual credit of up to $2,000.

"This is actually a true tax credit. It's not a loan," Drewyor said.

The MCC allows home buyers to take a tax credit of 20 percent of interest paid on their mortgage – up to $2,000 – each year. Buyers can adjust the exemptions listed on the W-4 they file with their employer, and less money will be withheld from their paycheck.

"You would see that additional income in your paycheck every month before you make that housing payment," Drewyor said.

Take a typical case: You take out a mortgage of $180,000 with a 5.5 percent fixed interest rate. During the first year, you would probably pay roughly $10,000 in interest on the loan.

Take away $2,000 of that interest and put an equal amount back into your wallet monthly: That's an extra $166 a month.

State government officials said they are excited about the potential of this tax credit to help jump-start the housing market and, more broadly, the economy.

"The MCC will help stimulate the housing market, which in integral to the recovery of our state's economy," Perdue said. "This is just the type of innovation from a state government agency that will help spur our economic recovery."

"With tax credits like this, it's a perfect time for first-time home buyers to enter the market," Drewyor said.

For information on the MCC, other tax credits and participating lenders, visit The N.C. Housing Finance Agency's Web site or call the agency at 919-877-5700 or toll-free at 800-393-0988.


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  • james27613 Feb 6, 2009

    to ncwoman,

    you should think about refi, if your loan is 10 yr old,
    your home has gone up in value, some equity also.

    that way no pmi.

  • WhatsInAName Feb 6, 2009

    "Welcome to yet another form of socialism compliments of our fine Democratic leadership."

    And Bush giving $350 billion to the banks wasn't socialism??? Like many, I was responsible. I have never not worked, bought less house than I can could afford, put over 30% down, and I have only my mortgage. I am frustrated and fed up with the fact that everyone is getting bailed out by the government, but most of all the multi-billionares who created this mess to start with.

    I also had a failed business, but never expected one dime of taxpayer funds to cover my mess.

    Bush and his cronies were the first to create socialism in this country...the dems have taken up the cause for the less well-off. I would rather give the money to the less-fortunate than to the billionares. So what if they have to sell their house in the Virgin Islands or maybe learn to live on $500,000 a year. If only I had those problems.

  • superman Feb 6, 2009

    Dont worry-- in a couple years everything will be free. Just hold on!

  • StevePyle Feb 6, 2009

    My fiance and I are taking advantage of the federal tax credit and it's part of what convinced us to buy a home instead of rent when we moved here to North Carolina last year. I don't qualify because I've owned a home before, but my fiance (we co-signed on the mortgage) does qualify to receive half the $7500. He's looking forward to a $3,750 check when we file our 2008 taxes this year!!! It will go a long way in helping us make our mortgage the next few months. And for those naysayers who have commented - we STILL had to save up for the down payment, we STILL had to qualify for a loan, we STILL pay our bills, live within our means, and I STILL CLIP COUPONS!!

  • Feb 6, 2009

    Welcome to yet another form of socialism compliments of our fine Democratic leadership. Or at the very least another form of redistribution of wealth. Any time one segment of society gets a governemnt handout paid for by another segment it's nothing more than socialism. Like someone else has said - those who act responsibly are punished while those who act irresponsibly are rewarded.

  • this is fdup Feb 5, 2009

    I feel so stupid.. I served in the army out.. got a job a small house we could afford.. never lived beyond our means ...never got into debt.. always paid my bills on time clipped coupons watched for sales ect ect you get the point! I could have lived sooo much better if I knew everyone else would pay for my mistakes!What a fool I am my father should have never instructed me on being responsible

  • Kbo Feb 5, 2009

    ncwoman: I'm pretty sure by law they have to remove it once you have 20% equity. I'm not sure what the law says on who has to pay for appraisal, but I'm sure you could search the web and find out.

  • NCTeacher Feb 5, 2009

    We bought a less expensive house than we could afford. We were pre-approved for a much larger loan than I was comfortable with so we stuck to our price range, and not what we could get.

    That being said- I am really happy about these tax credits. We didn't want to finance alot of extra money to do some improvements (redecoration mainly) to our house because we wanted to keep our payment as small as possible. But now I can get an interest free loan on my taxes to do big projects like carpet and building a deck. So I can get my work done, not have a ton of debt and I don't have to wait 2 years until I save up a chunk of money. For me, it is an all win situation.

  • ncwoman Feb 5, 2009

    My husband and I have been making payments on time on our home for almost 10 years now and we can't even get our loan company to remove the PMI insurance. We made a small down payment but even in these bad economic times, the difference between the balance due on the loan and the value of our home is more than enough to justify removal of the PMI insurance. They are telling us we must pay for an appraisal in order for removal to be considered. And then they would let us know. No promises.

    I told them I was really upset that we get treated this way, while recent home buyers didn't have to make a down payment, were not required to pay the PMI insurance or show proof of ability to make their house payment.

    You would think they would be interested in keeping those customers who are paying their loans happy.

  • Rolling Along Feb 5, 2009 fiscally responsible ones are the root cause of this entire mess...NOT! I am so tired of seeing bail out of what boils down to incompetent management and greed. SOME of us live below our means, pay cash, actually have savings and own our homes free and clear. While the rest of the world spendthrifts, and goes bankrupt at our expense.