Not only have prices come down, and interest rates stayed reasonable, but there's a tax credit of up to $8,000 that might be the extra push you need to get you into your first home. The first-time homebuyer credit was included in the Housing and Economic Recovery Act signed into law in 2008. But of course nothing comes without some strings attached, so carefully consider the following limitations. (Learn how to make first-time homebuying as easy as possible, read Top Tips For First-Time Home Buyers.)

Limitations of the First-Time Homebuyer Tax Credit

    Perhaps the most important string is that this program ends on December 1, 2009. If it takes six weeks to close a deal, that means that you need to have your offer accepted by the middle of October, sooner would be better. While there will likely be a rush put on papers when the deadline approaches, missing this cut-off date can be expensive. So while this may sound like you have until Christmas, it's wise to think of pressure mounting right after Labor day. (Make closing a home easier, read 10 Hurdles To Closing On A New Home.)

    This tax credit only applies to first-time homebuyers, for their principal residence (not vacation home) located in the United States. Even if you inherited a home (some might think that means you didn't really buy it), you are considered a homeowner and don't qualify as a first-time homebuyer. However, if you have owned a home in the past, you can still be considered a first-time homebuyer. If you didn't own a home in the United States in the last three years, you do qualify. So foreign home owners and those renters that used to own homes can qualify.You can't buy the home from a close relative, but the IRS has said that a close relative is an ancestor or someone that has lineal descendant, and that you can buy it from a step-relative. Also if you are single, you can buy part of the home and be a co-owner. Of course, you'll only get your portion of the tax credit.The income limits aren't too onerous, but there are limits. If you are married and filing jointly, you don't qualify for any tax credit if you earn more than $170,000 and the credit is phased out from $150,000 to $170,000. But if your modified adjusted gross income (MAGI) is less than $150,000, your income isn't a limitation. For other taxpayers, the phase-out range is $75,000 to $95,000. This means that the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less. (Avoid the pitfalls of home ownership, read 10 Worst First-Time Homebuyer Mistakes.)There are limits on how much you will receive. The $8000 is the maximum amount that you can receive and is based on 10% of the purchase price. So if you buy a $200,000 home, you can only claim a $2000 credit. If you are married and filing separately, you only qualify for half of that. However, there is also a $75,000 minimum purchase price, so that cheap fixer-upper you had your eye on won't qualify. However, the tax credit is refundable, so if you don't owe more taxes than your withholding, you will be getting a check. For example, if you withheld $5,000 from your paycheck, and you own $5000 tax liability, but qualify for a first-time homebuyer tax credit of $8000, then you'll get a check for $8000 after you file your return next year.You may be able to use the tax credit toward certain down payment or closing costs. The Secretary of Housing and Urban Development announced that HUD will allow "monetization" of the tax credit, meaning that as long as you still satisfy the FHA 3.5% down payment with other money, FHA-approved lenders will be allowed to give home buyers short-term loans based on their anticipated tax credit. (Learn more about the FHA in Understanding FHA Home Loans.)You may have to repay the credit. If within 36 months of purchase the property is no longer used as the taxpayer's principal residence, the taxpayer is required to repay the credit. So consider how long you will live in the home before factoring this credit into your finances.

    Of course, the strings don't stop here. A more detailed source for questions and answers can be found on the IRS website here, and you should always consult your own tax adviser. But even with all these strings, for some people, this may be just the thing they need to take the step into home ownership. (Learn more about buying and financing your first home in our related articles: Shopping For A Mortgage and Financing Basics For First-Time Homebuyers.)

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