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How The First-time Home Buyer Tax Credit Works For You

June 30 2009

If you’re a first-time home buyer, or a previous homeowner who hasn’t owned a home in a while, Uncle Sam has a deal for you.

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of 10% of the purchase price of your next home up to $8,000 when you buy a principal residence on or after January 1, 2009 and before December 1, 2009.


All you have to do is qualify.


Who’s eligible?

Anyone who has not owned a home within the last three years prior to the closing date on the home they wish to buy. Spouses can’t buy two homes and get two credits, but moms or dads can co-sign to help their kids get the tax credit. See:  www.hud.gov

Singles with incomes up to $75,000 and married couples filing jointly with incomes up to $150,000 can apply. See www.IRS.gov for specific terms.

The tax credit is only available on FHA conforming loans. These are government guaranteed loans through the Federal Housing Agency, a division of HUD.


What’s the latest?

The tax credit is old news to some – a $7,500 loan to first-time home buyers that began in 2008.

But in 2009, the tax credit was expanded to $8,000 and doesn’t have to be repaid.

However, a few caveats apply. The home you buy must be a principal residence – your homestead. And you have to maintain the home as your principal residence at least three years before you resell it.


What’s the best way to use the tax credit?

Claiming the credit just got easier. If you buy a home in 2009, you have your choice of claiming the credit on your 2008 tax return (even if you have to amend it,) or you can claim it on your 2009 tax return before April 15, 2010.  But don’t be surprised if your check is less if you owe income taxes. The IRS will subtract the amount you owe from your tax credit before sending your check.

You might prefer to use the tax credit when you close on your home. Your lender will supply you with a bridge loan which doesn’t have to be repaid by you. The bridge loan will front you the money for closing costs, buying down mortgage interest rates, or adding to your down payment.


Anything else?

The tax credit is for qualified home buyers. What that means is anyone who qualifies for an FHA-backed loan. That means the tax credit can not replace the minimum 3.5% down payment requirement.  

Your state may have some help to give you if the down payment is a problem. For example, California, Ohio, Idaho, and numerous other states have interest-free loans and other programs to help you. See: http://www.ncsha.org/section.cfm/3/34/2920

One more thing. Because of the popularity of the tax credit, many areas are already reporting disappearing inventories and longer closing periods. So don’t wait until the last minute to pick out your home and apply for a loan. The tax credit ends November 30, 2009. Your home purchase must close on that date or before.