The First Time Homebuyer Tax Credit

There has been much discussion about the First Time Home Buyer Tax Credit being offered by the government. A few quick notes about how it works and then I will address some recent news articles.

The credit is for up to $8,000 and is a true dollar for dollar tax credit. What that means is that if the government owed you $500 for your tax refund and you were eligible for the tax credit, you would receive $8,500 total from the IRS for your refund.

There are limits on what income you can make but they are fairly generous. For instance, the credit does not begin to phase out for a married couple until their Adjusted Gross Income is above $150,000.

The credit does not need to be paid back if you own the home for three years or more.

Now, there have been some news reports that have been released recently indicating that the credit can be used for the down payment or closing costs. As of now you can not use the credit for your down payment but you may be able to use it for closing costs. It is important to understand the pros and cons of using it for your closing costs as you must initially take a second mortgage from a non-profit which can increase your overall costs of borrowing.

There was also a report recently that the government was going to increase the credit and offer it to everyone. It is very easy to get caught in the trap of waiting for something bigger and better and it is very possible that rather than increase the credit the government may just let it expire as planned.

The credit is available only on closings on or before November 30, 2009 so time is ticking away...