Empoweringmyself

Some say real estate market is really bad. That may be so. But you will have to wonder "bad" for who. If you are a home owner and you have to sell your home in this market, then of course, the market is bad. But if you are considering buying a home- especially as a first time home buyer- this is your best time. Why, you ask. Well, the prices are reasonably lower and/or sellers are flexible and the government is offering you a tax credit up to $8000.

Yes, it is a Tax-Credit- Your government will refund you up to $8000. In short, if you are qualified first time home buyer and purchase a home on or after January 1, 2009 and before December 1, 2009, you are eligible for the tax credit. For the purpose of the tax credit, the purchase date is when the property is transferred to the new home buyer.

According to the lawmakers, "first-time home buyer" is defined as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, home ownership history will be checked for each spouse. Interestingly, ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

The tax credit is equal to 10 per cent of the home's purchase price up to a maximum of $8,000. If you are planning to purchase a home in a major cosmpolitan area, you will be eligible for the maximum credit.

There are also income limits for claiming the tax credit. The income limit for single tax payers is $75,000 and for married taxpayers filing jointly, the income limit is $150,000. For detailed explanation for the income limit refer to The American Recovery and Reinvestment Act 0f 2009.

What makes this home buyer tax credit appealing to the first time home buyers is that the tax credit does not have to be repaid. In another words, the tax incentive is a TRUE TAX CREDIT. Yes, indeed. There is one more requirement. Home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount.

Basically any home that will be used as a principal residence will qualify for the credit. This includes single family homes, attached homes like townhouses and condominiums, manufactured homes.

The tax credit applies to all U. S. citizens and resident aliens. In addition, anyone who is not a nonresident alien (as defined by the Internal Revenue Service) who has not owned a principal residence in the previous three years and who meets the income limits test may claim tax credit for a qualified home purchase. For a definition of "nonresident alien", refer to IRS Publication 519.

The tax credit is significant incentive. For many the tax credit will amount to a reserve that may be needed for any shortfall in the future. For those who may purchase a home using a FHA loan- a loan requiring 3.5% down payment- a tax credit may amount to retun of the down payment.

Methods to Use Tax Credit Now

The tax credit may provide enough incentive for first time home buyers to buy home if they have enough cash at least enough to pay down payment- 3.5% required by FHA loan. In some cases, buyers may need additional cash to pay for closing costs. The tax credit does not resolve the cash shortage at the time of purchase. The tax credit is supposed to be given to the taxpayer after they file their 2009 taxes in 2010.

The issue of needing cash earlier has been effectively resolved by a new set of FHA guidelines. The new guidelines allow first time buyers to take the money during closing. However, the use of money can be only used through state housing financing agencies. In essence, the state housing agencies provide second mortgages in the amount of tax credit so that the borrowers can use the money towards the required 3.5% down payment for FHA loans. These second mortgages are usually at low interest rate and have very short terms. To check if your state housing agency is participating in this program, you can visit http://www.ncsha.org.

In the event your state agency is not participating, you need not panic. It is still possible for an approved FHA approved lender to give you cash advance towards your credit. However, this advance can not be used towards the 3.5% FHA down payment requirement. The money can be used to buy down interest rate, closing cost, reserves, etc. Needless to say, the lenders will charge a fee for advancing you the money. But there is a limitation imposed by the FHA for the fee charged by the lender-- 2.5% of the tax credit. This means that the a borrower would pay for the entire 8000 advance is $200.

Is the tax credit enough reason to buy a home now?

Of course not. But following factors, in addition to tax credit, surely make the strong case to buy a home:

• Home Prices have reached at a reasonably low level in most communities, that means over time prices are likely to go up.
• Mortgage loans are still at lower rates and with FHA Loan (Government insured mortgage loans), home buyers will get a affordable loan.
• Sellers are likely to be flexible and with your assistance from your real estate agent, it is possible to get sellers to pay for the closing costs.

Despite all the favorable factors that exist in purchasing home as a first time home buyers, you must make sure of the following:

• Check out homes and evaluate pricing trends over last few years. Be sure you are able to get this information from your real estate agent.
• Make sure you can afford the payment.
• Though it is possible in the long run your home may be a good investment, that is not the main reason you are buying your home.
• Be sure to take a proactive approach in negotiating the purchase price- that may mean not totally relying on your real estate agent.

There is a saying that says your home is where your heart is. I would like to add something to that saying, that is if planned right, your home is where your money is also.

(Information related to tax credit is basic information. If you have more specific questions, I strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.)