There's a silver lining for every cloud, or so the saying goes, and the dramatic drop in home prices has many first-time home buyers hoping that will put the dream of homeownership within reach. Nevada, for example, has seen home prices drop by nearly one-third in one year and nearly 11% alone just in the first quarter of 2009. Overall, national home prices dropped just over 7% between 2008 and 2009, accord to the Federal Housing Finance Administration.

But even enticingly low home sales prices aren't enough for many buyers. What they need is cold hard cash. And now they're getting it from a seemingly unlikely source: Uncle Sam.
Good: Get $8,000
The federal government is offering an $8,000 first-time home buyer tax credit for first-time home buyers who close on a home purchase between January 1, 2009, and November 30, 2009. The credit lowers your tax bill dollar for dollar, so you either owe the IRS less come tax time or you will get a larger refund. While getting a tax break is a great added incentive to buy a home, the problem is that it takes months - or up to a year - to realize the benefit. And it still doesn't help you come up with the cash you need to purchase a home in the first place. (For background reading, see Financing Basics For First-Time Homebuyers.)

As homes continue to sit on the market, some communities want to help buyers into homes more quickly and jump start their local housing markets in the process. Uncle Sam heard them out and came up with a pretty creative answer - one that will put first-time home buyers in touch with $8,000 much more quickly.

Better: Get $8,000 Cash Now!
Lenders making mortgage loans backed by the Federal Housing Administration (FHA) are now allowed to turn that $8,000 first-time home buyer tax credit into immediate cash for qualified buyers. Buyers can use that money toward their closing costs, points and, in some states, for the actual down payment on a home when they apply for an FHA mortgage. FHA loans are typically somewhat easier to qualify for, have lower interest rates and require lower credit scores, closing costs and smaller down payments than other types of mortgages because they're guaranteed by the federal government. (To learn more, read Understanding FHA Home Loans.)

Some states are kicking in additional help with state-based tax credit programs that provide money on top of the $8,000 federal tax credit:

  • The "Texas Mortgage Credit Program" gives Texan home buyers an additional $2,000 mortgage interest tax credit
  • Utah home buyers can get a $6,000 grant for a new home purchase through the "Home Run Grant Program"
  • Kentucky's "First Home Advantage Program" gives qualified first-time home buyers $4,500 in down payment and closing cost assistance
  • California and Delaware also offer state-based assistance on top of the $8,000 federal tax credit-turned-cash

How to Sign Up
There are a few conditions you'll have to meet to get the federal home buyer tax credit as upfront cash:

  • You can't have owned a home within the last three years.
  • You'll have to buy a home by November 30, 2009.
  • You must live in the house you're buying (you can't get the credit as cash to buy an investment property or second home).

How Much You Can Get
There are also a few conditions that affect how much money you can get toward your home purchase:

  1. Home price. You'll get either 10% of the purchase price of the home or $8,000 - whichever amount is less - as a cash or advance loan to buy your home.

  2. Your income. Single buyers earning up to $75,000 and married couples earning up to $150,000 are eligible for the full $8,000 credit. The credit phases out gradually – individuals making $95,000 and couples earning $170,000 aren't eligible.

And don't be in a rush to sell - if you get the credit as cash to buy your home and then sell in less than three years, the government will take that money back when you close the deal.

Where Buyers Can Get Help
If you're thinking about buying a home, don't leave free money on the table. Take advantage of the federal - and perhaps even state - money, being offered and apply for an FHA mortgage to get the cash you need to go to closing. Now really - why wouldn't you?

Related Articles
  1. Home & Auto

    Understanding Rent-to-Own Contracts

    They can work for you or against you. Here's how to negotiate a fair one.
  2. Home & Auto

    Avoiding the 5 Most Common Rent-to-Own Mistakes

    Pitfalls that a prospective tenant-buyer could encounter on the road to purchase – and how not to stumble into them.
  3. Home & Auto

    Renting vs. Owning: Which is Better for You?

    Despite the conventional wisdom, renting might make more financial sense than you think.
  4. Home & Auto

    When Are Rent-to-Own Homes a Good Idea?

    Lease now and pay later can work – for a select few.
  5. Home & Auto

    The Pros and Cons of Owner Financing

    Details on the upside and risks of this type of deal for both the owner and the buyer.
  6. Professionals

    Advisors: Warn Clients About These Audit Triggers

    There are several factors that may increase the risk of an audit, especially with high-net-worth clients.
  7. Credit & Loans

    Avoiding Red Flags with Online Mortgage Lenders

    Using an online mortgage lender can be convenient, but how do you know you can trust one? Follow these tips to make sure the lender is legit.
  8. Credit & Loans

    How To Boost Your Credit Score To Save Thousands

    One of the first steps you should follow before buying a home is to boost your credit score. And how do you do that? Here, we tell you how.
  9. Entrepreneurship

    What's the Purpose of IRS Form 1065?

    Business partners need the information on this form to complete their own tax returns. Here are the details.
  10. Credit & Loans

    5 Mortgage Loans You Didn't Know About

    These lesser known mortgage loans are often overlooked by potential home buyers.
RELATED TERMS
  1. Fair Housing Act

    This law (Title VIII of the Civil Rights Act of 1968) forbids ...
  2. Construction Loan

    A short-term loan used to finance the building of a home or another ...
  3. Commercial Real Estate Loan

    definition of a commercial real estate loan
  4. Working Tax Credit (WTC)

    A tax credit offered to low-income individuals working in the ...
  5. Realtor Property Resource (RPR)

    A National Association of Realtors member benefit providing realtors ...
  6. Housing Choice Voucher Program

    The Housing Choice Voucher Program helps families with very low ...
RELATED FAQS
  1. Can I take my 401(k) to buy a house?

    Once you reach 59.5, you can use the funds in your 401(k) retirement savings account to buy a house or any other expense ... Read Full Answer >>
  2. Can I take my 401(k) to buy a house for my children?

    Under the standard regulations for 401(k) retirement savings plans, you may elect to withdraw funds from your 401(k) for ... Read Full Answer >>
  3. How is market value determined in the real estate market?

    Anyone who has ever tried to purchase or sell a home has probably heard a lot about the property's fair market value, or ... Read Full Answer >>
  4. What are the best free online calculators for calculating my taxable income?

    Free online calculators for determining your taxable income are located at Bankrate.com, TaxACT.com and Moneychimp.com. Determining ... Read Full Answer >>
  5. Can I get a tax credit from conducting research and development?

    It is possible for a company to qualify for a research and development tax credit for conducting research and development. ... Read Full Answer >>
  6. What does the American Dream mean to different generations?

    The American Dream at its core is the belief that every generation should enjoy greater prosperity than the generation before ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!