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

    6 Neighborhood Red Flags

    There are some qualities you can’t discover about a neighborhood until after you’ve moved in. But there are ways to scout out red flags ahead of time.
  2. Retirement

    5 Ways to Use Your Home to Retire

    Retirement is going to cost a lot, and for homeowners who face a shortfall, their home can be a source of income. From downsizing to renting, here's how.
  3. Home & Auto

    Read This Before Buying a Vacation Home with Friends

    Going in with friends to buy a vacation home will save you on the mortgage and expenses. But if there's conflict, it could end up costing your more.
  4. Home & Auto

    The Most Expensive Neighborhoods in London

    Understand what makes London such a desirable place to live and why it is so expensive. Learn about the top five most expensive neighborhoods in London.
  5. Home & Auto

    Why Housing Costs Shouldn't Exceed 30% of Your Budget

    Financial experts will argue that there’s no problem with allocating 50% of your net income to housing, but that barely leaves enough money for living comfortably. Reducing housing expenses to ...
  6. Investing Basics

    Tiny House Movement: Making Market Opportunities

    The tiny house movement throws all assumptions about household budgeting and mortgage management out the window, and creates new market segments too.
  7. Investing

    Where Should I Keep My Down Payment Savings?

    While saving up for a down payment, where should you keep your money. A bank? The stock market? It all depends on your timeline.
  8. Home & Auto

    The Most Expensive Neighborhoods in Manhattan

    Understand why Manhattan has some of the priciest residential real estate in the world. Learn about the top four most expensive neighborhoods in Manhattan.
  9. Home & Auto

    The Most Expensive Neighborhoods in Los Angeles

    Understand the layout of the greater Los Angeles area and what is driving up home values. Learn about the top eight most expensive places to live in LA.
  10. Investing

    How Does Depreciation Reduce My Tax Bill?

    How the depreciation tax rule can assist real estate investors.
  1. Can I borrow from my annuity to put a down payment on a house?

    You can borrow from your annuity to put a down payment on a house, but be prepared to pay an assortment of fees and penalties. ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. What are the best free online calculators for calculating my taxable income?

    Free online calculators for determining your taxable income are located at, and Determining ... Read Full Answer >>
  6. 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 >>

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!