Incentives, $8,500 tax credit enticing first-time buyers

Erin McSwain has been looking for a townhouse to purchase for the past two years.

In fact, the 29-year-old pediatric surgical nurse has been working with a salesperson at Patriot Square, Cambridge Homes' Plainfield community, for a year and a half.

But the economy has had McSwain sitting on the fence and continuing to pay rent.

"I was waiting to see what would happen and how much prices would drop," McSwain admitted.

What finally got the Streamwood native off the fence and signing on the dotted line was the $8,000 first-time buyer tax credit recently passed by the federal government.

"It played a big part in my decision," McSwain said. "There is a 75 percent chance I would still be on the fence without that tax credit."

"But I looked at the big picture with how low the interest rates have gone, the tax credit and the flexibility Cambridge Homes was showing in price and I finally decided to buy a two-bedroom townhouse with a loft," she explained. "And my mortgage payment will be very comparable to what I have been paying in rent."

Mark Lewandowski, a 24-year-old assistant manager at a Chicago ice company, was recently transferred back to the Chicago area from Rockford where he had been renting.

He purchased a unit in The Waterford, a 118-unit condominium building by Franczak Builders in Des Plaines and since he has already closed, he plans to use the $8,000 tax credit on his 2008 taxes.

"I have been told that I will be here for at least a couple of years so I was leaning toward buying something anyway and that tax credit was quite a nice drop in the bucket," Lewandowski said.

"I had been saving for a down payment and since I had a good amount to put down, my payments are comparable to the rent I was paying in Rockford and are less than I would have had to pay for rent here," he added.

For Chris Genslinger, the tax credit made the difference between buying something and continuing to live with his parents in Naperville.

The Neuqua Valley High School physical education teacher recently purchased a two-bedroom townhouse with a loft at Pulte Homes' Prescott Mill community in Oswego and plans to close this month.

"I had put some money put away before college and had been adding to it recently, but I couldn't have afforded to buy the townhouse without the $8,000 tax credit," Genslinger admitted.

Technically, the tax credit is part of the American Recovery and Reinvestment Act. And homebuyers can receive the benefits from the act almost immediately because, according to Amy McAnarney, executive director of The Tax Institute at H&R Block, taxpayers who purchase a home before Dec. 1, 2009, can claim this credit on their original or amended 2008 return. They do not have to wait for their 2009 return.

"The Recovery Act is doing its job of trying to stimulate the housing market," she said. "This is one credit where taxpayers can reap the benefits almost immediately."

To qualify, the homebuyer must not have owned a home in the previous three years and the home must be the primary residence. Unlike last year's credit, if the property remains the homeowner's primary residence for at least three years, no payback is required.

In addition to the federal credit, several state lawmakers are championing a bill in Illinois which would offer a 1 percent state income tax credit of up to $5,000 for anyone who buys a new home during 2009, 2010 and 2011. It would also be limited to principal places of residence. But that proposed law has not yet been voted upon.

"This tax credit is encouraging people to make a decision sooner rather than later," said Chris Naatz, vice president of sales and marketing for Pulte-Del Webb in Illinois.

"Now is a great time to buy, especially for renters," he continued. "You can own a home for less than you are paying each month in rent."

Pulte has six Chicago area communities that cater to first-time buyers and they are located in Lake Zurich, Lindenhurst, Zion, Oswego, Yorkville and Carpentersville.

"What we are seeing is demand that is stimulated by life," Naatz explained. "Just because the economy is bad doesn't mean people's lives aren't changing. We are seeing people who have been living in two-bedroom condos in the city and now they are expecting their second child and they need to move someplace that is better suited to their changing lifestyles."

"We are noticing that parents are beginning to encourage their children to buy now," said Peggy Taheri, vice president of sales and marketing for Smykal Homes which is currently building single-family homes and duplexes in Joliet, Minooka and Channahon.

"This is important to first time buyers as they typically respect their ' experience in making major purchases. Parents and first-time buyers recognize that interest rates are at historically low levels and that prices are at or close to the bottom that sales will never be better," she continued. "In addition, buyers are learning that qualifications for mortgage approvals are continually tightening and they should jump into housing now."

Brian Murphy, vice president of marketing for Town and Country Homes, added, "We are warning people that if they want to build a home from the ground up where they can choose all the amenities and they want to get that tax credit, they need to make their decisions soon because it generally takes four or five months to build a house and to get the tax credit they must close by Nov. 30."

Town and Country is currently marketing townhouses in Volo and Elgin and first-time buyer single family homes in Oswego and Wauconda.

To sweeten the pot even further for potential homebuyers, Town and Country has lowered their base prices by about 10 percent recently. They are also offering a mortgage protection insurance plan which the builder will purchase for any buyer who requests it. Under the terms of the insurance, if a buyer loses his or her job during the first two years they are in a home, the policy pays six months of mortgage payments.

The Gammonley Group is offering to pay closing costs for buyers at its condominium building located at 757 Orleans in Chicago's River North neighborhood. And for those units that are not yet finished, it is offering $15,000 worth of upgrades, according to Deborah Chiet, director of sales and marketing.

Base prices in the building start in the mid-$200,000s so they do attract first-time buyers, but The Gammonley Group has seen little traffic as a result of the federal tax credit, Chiet said.

Kipling Homes has some unusual programs at Georgetown on the River, their condominium project in Glen Ellyn and at Timber Oaks, their condominium and townhouse project in Joliet.

The Federal Housing Administration (FHA) seldom loans money for condominiums, according to Kathy Dames-Mattox, vice president of Kipling. But her firm went through a lengthy process to ensure that their projects would be eligible for the government-backed mortgages. Now Kipling is able to offer FHA financing with its inherent low down payment at both projects.

In addition to this preferred financing, each buyer is able to choose one of three additional options. They can get a $4,000 stainless steel appliance package free. Or they can have Kipling buy their first year interest rate down from 5.25 percent to 3.25 percent. After the first year it gradually rises to 5.25 percent. Or they can use "sweat equity" as their down payment. Under this FHA-sanctioned program, Kipling gives the buyer a two-week window to do all of the painting and staining necessary in their unit. This includes priming and painting of all walls, doors and woodwork. Their "sweat" replaces a monetary down payment.

No matter where they are purchasing a home, buyers applying for FHA loans only need to put down 3.5 percent. Compare this to the 20 percent down payments that private lenders are typically demanding and the savings are substantial, according to Stacey Doweidt, sales associate with SW Boulder Venture LLC, developers of Boulder Hill condominiums in Montgomery. It is also approved for FHA mortgages.

With an FHA loan, a one-bedroom condominium at Boulder Hill would only require a down payment of $2,656 whereas a traditional mortgage lender would require a down payment of $15,180 on that same unit.

In addition, Boulder Hill, like Kipling Homes and others, is offering a discount on options like upgraded appliances and flooring. Boulder Hill is offering $1,000 toward those options.

Boulder Hill is offering a free first-time homebuyer seminar from 1 to 4 p.m. today at the community of 150 converted condominiums and townhouses in Montgomery. For more information, call (630) 844-8500 or visit boulderhillcondos.com.