By Carlie Kollath, Northeast Mississippi Daily Journal, Tupelo, Miss.
Oct. 25--The Kilmans, along with their young daughter, Ava, had been renting a house in Madison. When they moved to Tupelo with the promise of an income for at least three years, Ben Kilman said, they wanted to be homeowners with space for a growing family.
The government's financial efforts to stimulate first-time homeownership through a tax credit didn't figure into the Kilmans' decision, but it helped.
"We would have bought a house regardless," Ben Kilman said.
The federal incentive, part of the American Recovery and Reinvestment Act, gives first-time homebuyers a tax credit of 10 percent of the purchase price of their home, up to $8,000. The goal is to get more buyers to enter the housing market and reduce the inventory of homes, thus revitalizing the market in general.
The credit is refundable and reduces homebuyers' tax bill or increases their refund.
For example, if a first-time homebuyer owes $1,000 in taxes and bought an $80,000 house, the taxes owed would be deducted from the $8,000 credit and the homebuyer would get $7,000. If the same buyer didn't owe any taxes, he or she would receive the full $8,000.
Homebuyers must meet several qualifications to claim the credit, including completing their house purchase before Dec. 1. If the house is under contract but the sale has not closed, it does not qualify for the credit.
It's been a popular program throughout the country, as well as in Northeast Mississippi. The Internal Revenue Service in September said more than 1.4 million taxpayers across the country have taken the incentive. As of the end of August, 15,152 Mississippians had claimed the incentive.
Jim Shirley, a broker at Gum Tree Mortgage in Tupelo, said 60 percent of the mortgages his company is working on now in New Albany, Oxford and Tupelo are directly related to the tax credit.
Joey Guyton, owner of J. Guyton Group, said 90 percent of his home sales over the past three months in a neighborhood geared at first-time homebuyers have been directly related to the tax credit.
Tracy Berry, a broker at Prudential 1st Real Estate, said buyers started coming in mid-September saying they wanted to "hurry and beat the deadline."
"They can get a whole lot more house for the money than they used to get," Berry said. "Now's a really good time to buy."
Other real estate companies like Coldwell Banker Tommy Morgan Realtors say they haven't noticed a rush, but say the program has been good for business.
Many of the local and national real estate-related businesses and groups are pushing for the program to get extended and possibly expanded to include all buyers.
But as of Friday, the program had not been extended, and Northeast Mississippi real estate veterans recommend that buyers should not count on extra time.
'It's going to be a bottleneck'
This week will be crunch time, they say, as buyers look to find houses and sign contracts so they will be able to close on or before Nov. 30.
Shirley said it typically takes about 30 days to do the paperwork for a mortgage and close on a house. Berry added that buyers applying for Federal Housing Adminstration or USDA loans -- USDA loans are popular in Northeast Mississippi and will finance up to 102 percent of the purchase price of a home outside of the Tupelo city limits for qualified buyers -- should allow extra time because the processing is taking longer than usual.
In addition, buyers should allow time for negotiations with the sellers, Berry said.
"First-time homebuyers think because the economy is bad and prices have dropped they can get the house for little to nothing," Berry said. "People still have to pay mortgages on their houses and they aren't accepting offers that are $20,000 to $30,000 less."
Shirley also cautioned that having the Thanksgiving holidays at the end of November will take away a few work days, putting even more of a time crunch on buyers.
"It's going to be a bottleneck," Shirley said. "People need to be preparing to get their tax credit application done by the middle of November."
Attracting new buyers
Shirley said the tax credit has been working wonders with attracting new buyers to the market. Some, he said, fall in the category with the Kilmans, who would have bought a house anyway but might have moved up the purchase to get the credit. He said he's seeing this with a lot of recent college graduates and newly married couples.
Zell Long, executive director of Tupelo's Neighborhood Development Corp., puts on free classes for first-time homebuyers and said she too is working with a lot of recent college grads and married couples who have been renting for a short time.
Shirley and Long said that the other demographic the incentive is attracting is long-time renters. This group has rented for years, but the possibility of getting up to $8,000 after buying a house has been enough of an incentive to get them to be buyers, Shirley said.
The money can't be applied to the purchase of the house and buyers can't file for it until after the sale is completed. And even then, it might take a while to get. Ben Kilman said he filed an amended tax return in May and still hasn't seen any money.
Shirley said he's heard of long delays, but the buyers he's worked with typically received their money in three to four weeks.
Long said that in the past few weeks she's had many participants who attended her classes because they are interested in the tax credit. Her advice to them:
"The main thing is they don't try to just go out and get a mortgage just for the up to $8,000," Long said. "It's critical to me that they become an informed homebuyer and not do it just for the money."
Long said it's also important that first-time homebuyers select a house they can afford over a house with "fun things" they really want.
"Let your finances rule and not your heart," Long said. "The biggest mistake is not having the patience to be truly ready to be buying a house."
Contact Carlie Kollath at (662) 678-1598 or carlie.kollath@djournal.com.
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