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:
- 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.
- 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?