First Time Home Buyer Tax Credit Information

How do I apply for the tax credit?

All eligible homebuyers simply claim the credit on their IRS form 1040 tax return.  Attach the new form 5405. There is no pre-purchase authorization, application or similar approval  process.  Print out the form:   First Time Home Buyer Credit Form

Luke Mullins from US News and World Report drilled down to the essential six points you need to know about the Homebuyer Tax Credit. 

1. For first-time home buyers: While the value of the credit remains as high as $8,000, the new law pushes back the deadline by which qualified first-time home buyers must make their transaction in order to claim it. (The legislation defines "first-time home buyers" as anyone who has not owned a principal residence in the three years prior to making the purchase.) Under the previous law that went into effect in February, buyers needed to close the transaction by Nov. 30. However, under the terms of the new law, home buyers must have a signed sales contract before May 1, 2010, but they have until the end of June to actually close the transaction. At the same time, the new law raises the annual income limits from $75,000 to $125,000 for singles and from $150,000 to $225,000 for married couples. The changes make nearly all first-time home buyers eligible for the credit, according to Goldman Sachs economist Alec Phillips.

[Also see New Home Buyer Tax Credit: 7 Things You Need to Know.]

2. For current home owners: In addition, the new law makes most current homeowners eligible for a tax credit of up to $6,500 when they purchase their next primary residence. Under the terms of the legislation, current homeowners must have lived in their home for five consecutive years over the previous eight to be eligible. Qualified home buyers can obtain the credit on homes purchased between Nov. 7 and the end of April 2010. That means they need a signed sales contract on a home before May 1, 2010, but they have until the end of June to close the sale. The income limits for current homeowners are the same as those for first-time home buyers. About 70 percent of current homeowners are now eligible for the credit, according to Phillips.

3. Additional specs: The credit can only be claimed on primary residences purchased for less than $800,000. And as long as they use the property as their primary residence for three or more years after the purchase, buyers don't have to pay it back. Furthermore, buyers can claim the credit on their 2009 taxes, even if the purchase was made in 2010 by filing an amended return.

 

     Using the First Time Home Buyer Tax Credit for a Downpayment

The 2009 HUD Mortgage Letter which was to follow the FHA ruling allowing the credit to be used as down payment was rescinded almost as quickly as it was posted to the HUD website.  Well, that has changed...again.   The May 29th 2009 Mortgage Letter (found here) is now allowing the credit to be used toward the down payment in the from of a second lien.

      The credit itself was not going to be used, however HUD approved lenders would be able to loan against the credit by creating a second lien on the property.  When the homeowner received the credit, they pay back the loan.

    There are still more traditional ways to borrow for a down payment using the first time homebuyer credit as collateral. 

• A loan from your employer.
• A loan from a relative or friend
• Your 401K (quit laughing)
• And if an incredible deal comes your way, even an unsecured credit card

    Of course, these ideas are only useful, if you do indeed pay off the loan with the credit.