As part of the extension of the first time home buyer tax credit the federal government has also added a tax credit for existing home owners.  If you have owned your primary residence for the past 5 years you can buy a new home and receive up to $6500 in federal tax credits.  This is similar to the first time home buyer tax credit.  This credit ends in April of 2010.

There are several reason why people should think about taking advantage of this credit.   If your family is expanding now, or in the near future and you need a bigger house now is a great time to buy.  People grow out of their homes all the time and now is as good of time as any to get that bigger house.  House prices are low, mortgage rates are extremely low and you get a tax credit!  In all the years I have been doing this I have not seen better time to buy.

I think the best way to go about taking advantage of this tax credit is by lowering your monthly payment.  Look around see if there are homes in your area, or in areas that you want to live that are going for less than what you owe on your home.  We have seen so many people lose their houses to foreclosure that it has become apparent that any one is at risk.  If you can sell your house, and get into a cheaper house you are helping mitigate the risk of foreclosure.  Maybe look at what your finances would be like if you had half the income.  Possibly look at what only one spouse can qualify for in the event that one of you loses your job.   Look at how the tax credit can help accelerate your amortization schedule?  There are endless ways to use this tax credit as the incentive that you need to lower your mortgage payment and put your self in a better financial position.  Everyone needs a raise, but the best way you can give your self a substantial raise would be to lower your monthly mortgage payment.

Here is a scenerio to illustrate exactly what I am talking about.   Bill has a loan for $225,000 but his house is still worth $280,000.  Bill is worried that his wife might lose her job in the future and wants to try and lower his bills.  The kids are moved out so Bill and his wife have no need for a big house any more.  Bill has been in his current loan for five years and currently has a 6% interest rate and pays $1,716 PITI per month.  He finds a house down the street, in a different neighborhood, that is selling for $200,000.  Bill puts his house up for sale and after real estate fees walks away with $43,ooo.  Bill puts $40k down and buys the new house.  Bills new mortgage payment has a rate of 4.75% and a monthly payment of $1,044.63.  Bill is now saving $671 per month and for the first time in years he is actually putting extra money towards retirement.   And on top of all this he is getting $6500 back from the government!  This seems like one of the very few win win scenarios in buying and selling a home.  This is a likely scenario and is something everyone should at least think about.

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