Understanding the Government Tax Credit on Purchasing a Home

<p>The recent introduction of the U.S. Government Tax Credit on purchasing a home has been somewhat successful; however, many U.S. citizens are still confused as to how it works. Listed below are a few detailed explanations of how these tax credits may help the recent or potential residential real estate buyer.</p><p>United States Department of Housing and Urban Development (HUD). The Secretary of HUD will allow the "monetization" of tax credits for purchasing a home. This means that buyers who use FHA insured type mortgages can apply their tax refund toward to the purchase of their home instead of waiting to file their 2009 returns to receive any amount of refund. These particular funds can be utilized for certain closing costs and down payment expenses. Under the strict guidelines provided by HUD, FHA, and not for profit lenders, will be authorized to present home purchasers short term loans up to $8,000. The guideline permits governmental agencies such as state funded housing agencies to provide long term loans that are secured by second mortgages to increase home sales.</p><p>Housing agencies, as well as other governmental agencies can also distribute the tax credit loans to potential homebuyers who utilize the FHA 3.5% down payment requirements. Also, all approved FHA loans will be able to use their anticipated tax credits to assist in paying down payment costs above the 3.5% standard for all FHA homes.</p><p>First Time Home Buyers. All first time home buyers purchasing any type of home, be it resale or new construction, are entitled to the tax credit. In order to qualify for the credit, the home purchase needs to happen on or after January 1, 2009, and before December 1, 2009. The purchase date for when the closing will occur and the property transfers must occur during this time.</p><p>U.S. law classifies a first time buyer as someone that has yet owned a primary residence within three years prior to purchase of a home. As for the tax payers that are married, the law designates the homeownership of both the spouse and the home buyer.</p><p>Down Payment Fees. Borrowers that apply for FHA mortgages are required by law to make a 3.5% minimum down payment towards the purchase of a home. The current law doesn't permit the approved lenders to monetize tax credits to reach the 3.5% minimal down payment. However, under the recent changes in law, the lenders can use tax credits for a down payment as well as other closing costs. This will help the new homebuyer get a lower interest rate in the process. New home buyers are now able to finance through their state Housing Finance Agencies as well as certain not for profit entities that can utilize the credit for down payments through secondary financing provided exclusively FHA. FHA also permits other governmental agencies, employers, and even parents to contribute towards these down payments. This particular program allows the homebuyer to shop for the best service and home price using their expected tax return for 2009.</p><p>Closing Costs. Per the American Reinvestment and Recovery Act of 2009 will permit homebuyers tax credits up to $8,000 for buying their first home. New home buyers may only access these tax credits once they file their tax returns with the Internal Revenue Service. First time home purchasers that use FHA type lenders may apply the credit towards their down payments in excess of 3.5% of the closing costs or appraised value of the home, which helps them get a lower interest rate. To understand more regarding the FHA's mortgagee letter, visit the HUD's website today.</p>