Did you know that the first time homebuyer tax credit was recently extended? Now, you can still take advantage of the homebuyer's tax credit if you sign a purchase agreement by April 30th 2010, and close on or before June 30th 2010. It's also been expanded to include a credit for move up and repeat homebuyer's as well, but that's not even the best part!
What's really great about it is there are several ways to use the tax credit to help with your down payment and/or your closing costs. That's right; you don't have to wait until AFTER you buy your first home to start taking advantage of first time homebuyer's tax credit. Let me explain. The credit is more like a stimulus refund than a tax deduction. It's like the difference between an in store discount rather than a mail in rebate. You don't have to close on the house up front and then wait until you file you're taxes to get the benefit. There are ways to actually use that anticipated refund to help you purchase the house.
Even better, like other stimulus refunds, you can get money back, even if you have little or no tax withholdings. If you have a federal income tax liability this will go to offset it as well!
It's in you're best interest, as a first time buyer, to investigate a Federal Housing Administration (FHA) approved loan. FHA loans traditionally require the lowest down payment of any on the market, which can be as low as 3.5% of the purchase price. Here is a tip on how to use the homebuyer tax credit to help pay all or part of that 3.5% down payment.
Talk to your tax professional to be sure you qualify for the tax credit. If so, then ask them about reducing your income tax withholdings with your employer, up to the amount of your anticipated credit. This would allow you to have fewer taxes taken out of your paycheck; thereby giving you more take home pay in each check. This is your money, and can be used to satisfy your 3.5% down payment requirement. Be sure toput that extra take home pay aside for use only as yourdown payment! Be careful, if you have your income tax withholding altered and then do not follow through with the home purchase, you will be liable for repayment of any income tax owed to the IRS, possibly with interest and penalties. Also, don't forget to change your withholdings back to where you had them once you have received your tax credit.
The alternative to an FHA loan would be some type of conventional financing. In this case, the rule changes that appeared in part of the economic stimulus legislation, has allowed some state agencies to introduce housing finance programs that offer short-term second greeneasylife.com mortgage loans that can be used to fund a down payment. These loans are often made for little or no interest, and may be repaid using the homebuyer tax credit refund. This is typically for conventional loans and you may not be able to use it to satisfy the minimum required down payment on an FHA loan. Check your state's Housing Finance Agency (HFA) website, you may find that there are additional programs that offer second mortgages with longer terms, or even grants, to help first time homebuyers purchase a home. There are currently 19 state agencies that have tax credit assistance programs, with more expected to come on line. You can find a list of the current programs at The National Council of State Housing Agencies (NCSHA).
You should consult with your tax professional to determine if you qualify and exactly how best to take advantage of this new tax code and how it may affect you. As always, the key to success is a solid education.
To get your FREE REPORT on selling or buying a home and other tips on all things real estate go to mi7online.com/free-reports mi7online.com/free-reports/.
Kyle Pavey is a real estate solution professional. Feel free to visit his website at mi7online.com mi7online.com.
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