First Time Home Buyer Tax Credit

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The First Time Home Buyer Tax Credit has been around for a couple of months, but I’ve not really written about it:

Paul Wakefield, with Security Mortgage, emailed me his weekly update this morning, with the details and an example, so I decided it was time to share:

A reminder about the HR 3221 First Time Home Buyer Tax Credit.

This is a $7,500 TAX CREDIT, not a deduction. First-time home buyers or someone who has not owned a home for the past three years are eligible.

They must purchase a home between April 9th, 2008 and before July 1st of 2009. So, if the property is purchased prior to December 31st of this year, the buyer could potentially receive their credit in the next couple of months, provided they file their 2008 taxes right away.

The main features are:

• Income Limits: $75,000 for a single tax payer/ $150,000 for a married couple.
• Repayment: A home buyer claiming a $7,500 credit would repay the credit $500 per year. The home owner does not have to begin making repayments on the credit until 2 years after the credit is claimed. If the home owner sells the home, then the remaining credit amount would be due from the profit of the home sale. So, it really a 0% interest loan.
• Tax credit is refundable. For example: If a qualified home buyer expected, notwithstanding the tax credit, a federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit, the taxpayer would owe the IRS $1,000 on April 15th, 2009. Suppose now, that the taxpayer qualified for the $7,500 credit. As a result, the taxpayer would receive a check for $6,500 ($7,500 – the $1,000 owed).

Keep in mind that the FHA does require a 3% down payment. After the first of the year, the minimum down payment increases half a percent to 3.5% of the purchase price. The down payment can be a gift from family, if the buyer does not have the funds.

As a side note, the FHA Maximum Mortgage Limits in Maricopa County will be lowered to $271,050, from the current maximum of $346,250, as of the first of the year.

I have a client who just closed on her first home last month, and one of the incentives for purchasing now, rather than waiting, was this tax credit. She was able to make her down payment, and know that she would be getting a tax credit back in several months, that would replenish the funds she used for her down payment. 

Here are two more resources for buyers interested in using the First Time Home Buyer Tax Credit to buy a home:

First-time homebuyer tax credit chart
Frequently asked questions about the first-time homebuyer tax credit

Tagged as: Federal Housing Administration, FHA, first time home buyer, home buyer, Home Mortgage / Finance, HR 3211, Paul Wakefield, tax credit