Use of $8,000 Tax Credit Expanded For First Time Buyers

Qualified first-time homebuyers now have another way to take advantage of the federal $8,000 tax credit for the purchase of a principal residence.

The American Recovery and Investment Act of 2009 created a tax credit of up to $8,000 for buyers purchasing their first home before Dec. 1, 2009. Previously, homeowners could only use this credit after purchasing a home and filing their tax return with the Internal Revenue Service. On May 29, however, the U.S. Department of Housing and Urban Development (HUD) announced that the Federal Housing Administration (FHA) will allow state finance agencies to provide second mortgages "monetizing" the tax credit.

What does this mean in plain English? That homebuyers can immediately use the $8,000 credit toward their down payment and closing costs for the purchase of homes with FHA-insured mortgages.

This is great news for first-time homebuyers who want to take advantage of the low mortgage rates and competitive pricing of many homes today, but don't have enough money on hand for both a down payment and closing costs.

Homebuyers who obtain an FHA-insured mortgage are still required to have the 3.5 percent minimum down payment. But the tax credit can be applied to a down payment in excess of 3.5 percent of appraised value and could possibly help the borrowers obtain a lower interest rate by increasing the total amount down.

According to estimates by the National Association of Home Builders, 40,000 more homes will be purchased due to the new FHA monetization program, in addition to the 160,000 sales already expected, due to the creation of the credit.

For more information on the tax credit, or to learn about available homes in your area, call our CENTURY 21 office today so we can get you on the path to the home of your dreams.

* Consult a tax professional for details.