How does the first time home buyer tax credit work?

First Time Home Buyer Tax Credit

The first time home buyer tax credit has been on all television stations, websites and in newspapers this year. What there seems to be is a lack of information and details. Let's say that you found an home for sale that you want to buy. What next?

How does the first time home buyer tax credit work?

Do I qualify?

So, with the deadline rapidly approaching, I thought it was time to spread out the information for all to see.

1) GET MOVING!!! - The home purchase needs to close by November 30th, 2009. Sounds far off, but it's not. Consider this: After you have selected your Real Estate Agent, you need to start looking at homes. If you are lucky, you find the "right home" quickly, let's say 7 days. WAIT!!! - Did you get pre-approved? Let's add another day. After your paperwork is in, it will take about a week to get your new loan approved. Of course, you need to get an inspection and appraisal done. With the strict guidelines in place now and in most cases the appraisal needs to be reviewed. Another week. Your loan is cleared to close. You now need to give the title company a few days to prepare the paperwork. That way you can review it before you close. So, we are at a total of about 24 business days. November 30th, the deadline for the first time home buyer tax credit, doesn't seem to be so far away, does it?

2) Who qualifies? - This first time home buyer tax credit is set up for "First Time Home Buyers". A first time home buyer is defined as someone who has not owned a home in the past 3 years. There are income restrictions as well. To receive the full benefit, an individual can't make more than $75,000 and married borrowers can't make more than $150,000 per year. You can make more than these amounts, but your credit is reduced.                                                     

3) How much is it? - the first time home buyer tax credit goes up to $8,000 or 10% of the purchase price. So, if the home you are buying is less than $80,000, you will receive 10% of the purchase price. In our example, the home for sale that you are buying is $55,000 x 10% = $5,500 tax credit that you would receive.

4) Do I have to pay it back? - NO. The exception to this rule is if you sell your home within the first three years.

Those are the most pressing questions that continue to come up over and over again. There are many reasons to purchase your home right now. Prices are still down; rates are still near all time lows and a first time home buyer tax credit is available. Now is the time to buy your piece of the American dream. Keep waiting and the market will return to where it was a few years ago. Purchase prices and rates will all be higher and there will be no tax credit available. Opportunities like this don't come around very often.

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