The passage of the American Housing Rescue and Foreclosure Prevention Act of 2008 at the end of July 2008 made about $15 billion of tax incentives available to Americans impacted by the mortgage crisis. (See our feature Subprime Mortgages for more on the subprime meltdown.)

The largest implication of this act for first time home buyers is the availability of a refundable tax credit. The tax credit, which functions as an interest-free loan, provides first-time home buyers with up to $7,500 to purchase a residence between April 9, 2008, and July 1, 2009; this amount must be paid back over 15 years in equal installments. In order to take advantage of this provision, home buyers must claim the credit on their 2008 or 2009 tax returns.

However, there are a few restrictions on this credit that must be considered. The credit begins to phase out at the $75,000 income level for single tax filers and at $150,000 for joint tax filers. If two single tax filers purchase a home jointly, the tax credit is split between them.

As lending restrictions tightened after the subprime mortgage meltdown, many buyers were pushed out of the market. This provision in the act is intended to stimulate purchases in the real estate market. By taking advantage of this credit, first-time home buyers will be able to make a larger down payment.

Follow our step-by-step First-Time Home-buyer Guide to help make your homeownership dreams a reality.

  1. Do FHA loans have prepayment penalties?

    Unlike subprime mortgages issued by some conventional commercial lenders, Federal Housing Administration (FHA) loans do not ... Read Full Answer >>
  2. Can FHA loans be refinanced?

    Federal Housing Administration (FHA) loans can be refinanced in several ways. According to the U.S. Department of Housing ... Read Full Answer >>
  3. Can FHA loans be used for investment property?

    Federal Housing Administration (FHA) loans were created to promote homeownership. These loans have lower down payment requirements ... Read Full Answer >>
  4. Do FHA loans have private mortgage insurance (PMI)?

    he When you make a down payment from 3 to 20% of the value of your home and take out a Federal Housing Administration (FHA) ... Read Full Answer >>
  5. Are personal loans tax deductible?

    Interest paid on personal loans is not tax deductible. If you take out a loan to buy a car for personal use or to cover other ... Read Full Answer >>
  6. How many FHA loans can I have?

    Generally, the Federal Housing Administration (FHA) does not insure more than one mortgage per borrower. This is to prevent ... Read Full Answer >>
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