First Time Home Buyer $7,500 Tax Credit and How To Use It for Down Payment

By
Mortgage and Lending with Guild Mortgage Co - Oak Harbor WA

First of all, it needs to be stressed that there are limitations and qualification for this program. The most stringent is that it is availalbe from homes purchased between April 9 of this year and July 1 of next year. If you miss that window, you miss the tax credit.

Next, the credit is only available to single taxpayers with an Adjusted Gross Income (AGI) of $75,000 or less or married taxpayers with a AGI or $150,000 or less to get the full credit. Lesser credits are available for those making more than the limits listed here.

Additionally, this is not a gift from the government. It is a tax credit that has to be paid back. It is in essence a interest-free loan. You are required to pay it back (with your taxes) at $500 per year starting with the tax return of the year after you receive the credit. So, if you take the credit for 2008, it starts being payable with your 2010 taxes. It is paid over a 15 year period. Also, if you sold the home in this time period and netted less than what was still owing, that amount would be forgiven.

Remember, politicians wrote this. That means it takes a lot to understand what they did. When working on the tax ramification, please seek advise from a tax professional on your personal situation. I am not a tax professional and do not intend to give any tax advice. I do believe you will find that your tax obligation as a home owner should more than generate deductions to pay for the $500. Again, this is my belief, not tax advice.

You also must not have had ownership in a primary residence for the past three years to qualify as a first time home buyer.

But, how do you use it for down payment? Good question.

  1. Borrow from your 401k. I know that most people have an aversion to taking money from their 401k since that is their retirement nest egg. But, by using the 401k for the down payment, the money (again check with a tax professional) can be borrowed or even withdrawn and then paid back with no penalties.

  2. Borrow the money from a commercial lending institution. You may belong to a credit union that would be more than happy to lend you the money in this instance. Use your car or boat or the like for security if necessary.

  3. Get a gift from a relative. The money must be a gift with no expectation of being repaid. The giftor must sign a letter stating that it is a gift with no repayment. That being said, what you do with your $7,500 is your business.

  4. Sell a kidney....no, I don't think that would be a really good idea. I don't think you can get that back. But, maybe you have a collection of baseball cards, or silver dollars you can use for security to get the down payment.

I keep saying it is $7,500, but in actuality, it is only 10% of the sales price of the home. So, if you found a home with a sale price less than $75,000, your credit would be less. Let me know if you find one of these, OK?

I hope this information helps you understand this particular portion of the Housing Act of 2008. There is so much more in the Act that will have effect on us down the road. This one is a good thing, I think.

Now, just one more thing. There are rumors and speculation that this money can be used for down payment and/or closing costs. That is not true. This is not money in hand. That means you cannot use it "CAUSE YOU AIN'T GOT IT YET!" Anytime you are working on a loan, one of the primary thing we do is verify and track the money. Where did it come from and how long has it been there?

Call me and let's discuss your options on purchasing a home before this incentive is gone. Rates are great. Prices are excellent. What are you waiting for?

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Thesa Chambers 09/03/2008 06:35 PM
  2. Jeannie Kontis 12/27/2008 01:44 PM
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Rainer
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Bobby Stevens
Windermere Real Estate/Lane County - Eugene, OR
Realtor, Eugene, Oregon

Thanks for the info Fred, and you've got the best smiley collection I've seen!

Sep 04, 2008 05:17 AM #6
Rainer
172,365
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Thanks Bobby. I really enjoy smileys. They perk everything up.

Sep 04, 2008 05:19 AM #7
Ambassador
533,690
Jason Sardi
Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC
Your Agent for Life

Love you keep us in the loop with kind of info, Fred.  Love the graphics on your posts.  I should hire you to start staging mine:-)

Sep 04, 2008 07:07 AM #8
Rainer
172,365
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Thank you Jason, my bro. I like the smiley faces. I just have fun with them. I work fairly reasonable, but never free.

Sep 04, 2008 07:13 AM #9
Rainer
3,712
Carla Rocha - RochaTeam
United Realty Group - Sunrise, FL
Talk To Us

Fred,

I work with a lot of first-time buyers and none of them so far have showed interest in using this tax credit.  What experience are you having with yours?

 

Nov 17, 2008 06:45 AM #10
Rainer
172,365
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Rocha Team - I really don't have an answer for you. The first ones to get this won't get it until they file their 2008 tax return. Anthing can happen between now and then.

Nov 17, 2008 07:09 AM #11
Rainer
172,365
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Here is the message that was deleted:

Fred thank you for your insights. How would you suggest responsibly using the $7500 tax credit?

 

 

www.zerodownavailable.com

 

11/19/2008 10:52 AM by Russell Martinez   Delete Report as Spam

Well Russell, first off, if you are going to spam with your website, you might want to make sure the link works. Yours doesn't. As for suggestions for the use of the tax credit, I would never suggest what someone would use the money for except to pay back a 401k or IRA. It is definitely up to the individual. It is their money (until they have to pay it back.)

Nov 19, 2008 03:58 AM #12
Rainer
7,591
Aaron Bosshardt
Bosshardt Realty Services, Inc. - Gainesville, FL

Great article. I liked it so much I just hyperlinked it in my most recent post to explain the tax credit.

http://activerain.com/blogsview/800861/10-Terms-Every-First-Time-Home-Buyer-and-their-REALTOR-should-know

Nov 21, 2008 12:07 AM #13
Rainmaker
565,629
Mike Saunders
Lanier Partners - Athens, GA

Fred - as usual, more great information put in terms even I can understand. Of course you might scare people with your admonition that this was written by politicians.

Nov 21, 2008 01:22 AM #14
Rainer
172,365
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Bosshardt Realty - thanks for the link. I tried to get it as easy to understand as possible. Glad you thought I did it.

Awww Mike, you don't have difficulty understanding, you're just old, like me. LOL. Anytime a politician is involved, you should be scared.

Nov 21, 2008 03:40 AM #15
Rainmaker
1,080,029
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Fred - this post is perfect timing for me. I have read about this and was trying to discuss it with a buyer this week. We were trying to figure out how to get the money in time to use it for a downpayment on her house. Borrowing from the retirement plans is a great idea. Thanks for making this very clear.

Nov 27, 2008 01:46 PM #16
Rainer
172,365
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Sharon - Happy I could help with this. It is a good program and I understand there is some discussion about making it non-repayable (is that a word?)

Nov 28, 2008 10:00 AM #17
Rainmaker
1,080,029
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Fred - you are welcome. I told the buyer about it today. Not sure if she's going to use it but at least she knows about it. If it's not a word, let's make it one!

Nov 28, 2008 02:58 PM #18
Rainer
172,365
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Works for me Sharon. I love making up words.

Nov 28, 2008 04:34 PM #19
Rainmaker
70,830
Mobile Austin Notary
Apostille/Authentication/Embassy Legalization, Notary Public, Loan Signing Agent & Process Server Services - Austin, TX
www.mobileaustinnotary.com

Great Info. Smily

Dec 01, 2008 04:41 PM #20
Rainer
172,365
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Thanks Jenette, I try to get good stuff out there.

Dec 02, 2008 12:38 AM #21
Rainer
112,575
Jeannie Kontis
Lancaster, PA

Fred, I have been looking for an easy to understand way to get this across to buyers.  I love that you have the re-blog button on, because I'm going to do so!  Thanks for making it so "spelled out" for us all.

Dec 27, 2008 01:40 PM #22
Rainer
172,365
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Jeannie - You are very welcome. I try to get things explained where even I can understand what I wrote.

Dec 27, 2008 02:03 PM #23
Anonymous
Tricia

I have just closed on a new home and have every intention of taking advantage of the tax credit.  I figure this is a way to get some of those home improvements done sooner than planned.  But as I listen to the news I hear about 2 proposed revisions and wonder how/when these may effect me.   As I understand it now, I can get $7,500 which would be repaid of 15 years with 0% interest.  New option 1: no repayment is necessary.  New option 2: the amount gets repaid still at 0% but the amount can go up to $15,000.  So my question is this... what if I apply for the credit now and then the program changes?  By doing this with my 2008 taxes (since I can) am I going to lose out on "free money" or more credit?  Would there be any retroactive adjustments allowed?  Would I be better off waiting to do all this with my 2009 return?  (I closed on January 30,2009, so could do either year according to the rules).

Can anyone offer any guidance here?

Feb 04, 2009 04:25 AM #24
Rainer
172,365
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Tricia - I would suggest talking to a tax professional about your options. Right now, there is only one option but there is language in the "Stimulus" bill to change it. Will it be retroactive? Don't know. Will you lose out if you do it now? Don't know. It isn't done, so no one can answer that.

Feb 04, 2009 04:38 AM #25
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