New tax credit for 1st time homebuyers comes with risks

A $7,500 tax credit for first time homebuyers, sounds like a great deal. It was passed as part of the Housing and Economic Recovery Act to help jump-start the housing market, but this too could get homeowners in trouble. It's more complicated than it seems and buyers need to make sure they understand it thoroughly.

It's a $7,500 credit for people buying their first home or those who haven't owned a home in the past 3 years.

To qualify individuals need to earn less than $75,000 and couples less than $150,000. You can get a partial credit if you earn up to $95,000 alone or $170,000 as a couple.

Those who qualify can take a credit worth 10% of a home's sale price, up to $7,500. It's good for homes bought between April 9th, 2008 and July 1st, 2009.

The credit is a dollar for dollar deduction on your tax bill and if your taxes are less than $7,500 the government will cut you a check for the difference.

It all sounds pretty good and then you find out, the money is a loan.
Within two years you need to start paying it back at a rate of no more than $500 a year for 15 years.
Also remember, you don't get any cash up front. You apply after you buy the house.

Experts worry that consumers will spend this money without considering how they'll pay it back.
The lesson here is this, use the credit with caution.

As for it jump starting the housing market? Most analysts agree this is just a band-aid, not a solution.