Everyone knows it’s a buyer’s market in Indiana housing these days, but first-time home-buyers haven’t been flocking to make their move. Much of the reason for the stall has been the mortgage market – lenders are much stricter nowadays about who qualifies for mortgage money, requiring higher down payments and a more solid work and credit histories than might have been true just a couple of years ago. A new tax credit, though, is helping get first-timers going.

As an Indiana bankruptcy attorney for two and a half decades, I’m usually dealing with homes years after they were purchased, helping folks make difficult decisions about foreclosure. As I brought out in my earlier blog, Can Bad Habits Lead To Bankruptcy?, most bankruptcies, despite the myths, are not caused by irresponsible spending, but by catastrophic events such as extended illness, job loss, and divorce. The same thing is true of foreclosures. Despite the press and the myths, most foreclosures are not the result of irresponsible lending practices or even of “buying too much house”, but derive from the same often unforeseeable combination of negative life events.

One aspect of this new tax credit plan for first-time home buyers, an aspect of which I heartily approve, is that it helps individuals who have good credit and who have enough income to qualify, get into a house without , as Dave Caveness of Carpenter Realtors points out, “pushing lenders to make irresponsible mortgage lending decisions.” The second thing I like about the tax credit plan itself is that it’s not a give-away, but an interest-free loan from the government to first-time home buyers.

The tax credit applies, by the way, only to homes purchased between April 9, 2008 and July 1, 2009, and it’s worth 10% of the purchase price of the home, with a ceiling of $7500 per buyer. The credit must be repaid over fifteen years. If the home is sold before then, the loan comes due. One “escape clause”, though, is that the repayment is due only if there is sufficient capital gain from the sale of the home; otherwise, the loan’s forgiven.

Some realtor friends see the plan working already, if only on a small scale, to create some activity in the housing market. Needless to say, our local economy could use it. Always on the alert for good news that can help my Indiana bankruptcy clients rebuild their financial lives, I’m hoping this, as the song goes, “could be the start of something big”.