First Time Home Buyers

I. What's a first timer?
II. Tax Credit vs Tax Deduction
III. How you Become a Proficient Home Buyer
IV.  Who's Qualified

I.  What's a First Timer?  A first time home buyer is one who has never owned a home or who has not owned a home in the last 3 years.  Either case will qualify you as a first time home buyer meaning you get some perks other home buyers don't get. 

The biggest perk is the fed's $8,000 tax credit at the time of closing.  "You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns). No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase."  This must be done by November 30, 2009; I suspect the congress will extend this program but don't bet on it, do it now. 

II.  Tax Credit vs Tax Deduction;  "A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS", this is from the Q&A on the government website.

"HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.

"Under the guidelines announced by HUD, non-profits and FHA-approved lenders will be allowed to give home buyers short-term loans of up to $8,000.

"The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.

"Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement.

In addition, approved FHA lenders will also be able to purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes."

III.  How you Become a Proficient Home Buyer is by going through the process with a professional, a person who has done this hundreds of times.  Another way to prevent this from becoming a head ache is to know everything that's coming down the pike and being prepared for it.  Knowing what options you're going to have for each of these instances lets you handle them with little or no stress, you know it's coming and you know how to handle it.  We're going to walk you step by step through the process from beginning to end.  If you have any specific questions, please contact us below and we'll get back to you as soon as possible, usually within 30 minutes.

By the end of your first home purchase, you'll feel like a pro.  You'll know all there is to know about the property you purchased, you'll understand the mortgage you have and you'll have a good working knowledge of the real estate market for future purchases or investments.

IV. Who's Qualified  You can not have owned a principal residence in the last 3 years.  You must be a U.S. citizen or have a valid ITIN numbers.  If you're married, both people must be first timers.  If you're filing separatly you will each get half of the credit.  Unmarried people buying a house together can qualify if all people are not eligible; however, any credit will be available only to the eligible parties.

There are income limits: a single person earning $75,000 or less will be entitled to the maximum amount allowed.  Income between $75,000 and $95,000 will get a partial credit.  Please check with a tax specialist to determine how much that credit will be.  For those earning over $95,000 there is no credit.  For married couples you can double those figures.  Normally, this income is based on your Modified Gross Income.

Some other requirements are 1) the home must be in the United States. 2) the home can not be acquired as a gift or inheritance.  3)  the home can not come from a related person, however, a brother or sister doesn't count.  4) If you have ownership interest in a vacation property that is not your principal residence you may still be eligible for the credit.  5)  You must hold the house for a minimum of 3 years or you will be required to pay back the credit you took.  6) You can claim the credit on either your '08 or '09 tax return.  In order to claim it on '08 you will have to file an Amended Return; this is the quickest way to get the money.  7)  If you live in Washington D.C. and use the D.C. housing credit, you will not be able to use the federal credit as well.  8) If you purchased between April 9, 2008 and December 31, 2008 and took the $7,500 tax credit, you still have to pay that one back.  9)  You must close on your new property before taking the credit.