Getting approved/Tax withholding question

ralbusta · ‎02-15-2009

I plan to buy my first home in Nov. With the new $8000 tax credit going to be signed into law shortly, I had a question.

I plan to adjust my withholding so no tax is withheld, and I could apply the extra money towards down payment. I know taxes are looked into during the approval process.

Now would this plan be frowned upon by lenders, or seen as sound financial planning?

Anonymous · ‎02-15-2009

this will mean nothing to a lender. DTI levels/income levels are based on gross pay. Also, I would be leary of doing what you are planning. Timing a home purchase is tricky and what happens if you are looking in October or Novemeber and then it does not close in time. Then the tax credit may fall the next year (or not at all) and you owe a ton of money, or you could be forced to rush into a purchase based upon needing to close quickly which could be even worse long term. To each their own, but it is definitely a big gamble to try that.

Anonymous · ‎02-16-2009

I did exactly this when I knew I would be home-shopping -- and likely buying -- sometime this winter/spring (I close before the end of this month). On the W-4 worksheet, there is a line for withholding adjustments, and I simply put something akin to "$7,500 first-time home buyer tax credit". My exemptions jumped from 2 to 6, and my withholding decreased by about $425 per month, which I set aside in the down-payment pool.

Just remember to reverse the adjustment once you've accounted for whatever portion of the credit you wish to.

(By the way, you're ALWAYS only obligated to pay, via withholding, whatever tax will cover your liability. You can claim however many exemptions necessary to do that. Tax refunds aren't mandatory -- what they ARE are interest-free loans you're making to the Treasury.)

Message Edited by oldhack62 on 02-16-2009 08:07 AM