The Credit Has to Be Repaid

• The biggest catch to the homebuyer tax credit is that it needs to be repaid either when you sell the house or over the first 17 years you own the house (beginning two years after you purchased the home), whichever comes first. With the way the first-time homebuyer tax credit works, it is actually an interest-free loan rather than a gift from the government to help you pay for your house.
  
  

Credit is "up to" $8,000

• A tax credit of $8,000 sounds good, but it is actually 10 percent of the purchase price of the house up to $8,000. So to get the maximum credit, the house would have to be worth $800,000. Since there are income restrictions on who can take the credit, it is unlikely that eligible taxpayers would also be eligible for a mortgage close to that amount. However, the credit, whatever the amount, is refundable. This means that if the taxes you owe in the year you take the credit are less than the credit, the excess credit will become part of your tax refund.
  
  

Credit vs. Deduction

• A nice thing about the credit is that it is a credit and not a deduction. This means that you will get a dollar-for-dollar reduction of the federal taxes you owe in the amount of the credit. A deduction only reduces your taxable income and would not save you as much money.
  
  

Delaying a Problem

• Some financial experts have suggested that rather than stimulate the housing market, the tax credit could lead to creating more of the same problems that created the problems with the housing market in the first place. CNN Money suggested that some lenders could take the credit into account when calculating mortgage eligibility. This would allow a person to be approved for a larger mortgage than he might be able to afford. The credit doesn't help the buyers come up with closing costs either, because the credit has to be submitted after the purchase. This means it could be months before the buyers sees any relief from the credit. Some buyers even found themselves without any credit because bureaucracy delayed the closing on their homes until it was past the eligibility date. If the buyer had been counting on the credit, then he might have found himself short of cash.
  
  

Good or Bad?

• Whether the credit is good or bad depends on your financial situation when you make the purchase. If you don't need the additional credit, then you are getting an interest-free loan that will certainly come in handy as long as you know it will need to be repaid. However, if you use the credit because you really need it, or you don't realize that the credit needs to be repaid, then you will wind up being shocked down the road and find yourself owing more than your monthly payment.