Homebuyer Tax Incentive
The American Recovery and Reinvestment Act (ARRA) provides first-time home-buyers - individuals that have not owned a primary residence for the last three years - an incentive worth up to $8,000 if they purchase a home between January 1, 2009 and June 30, 2010. A binding home purchase agreement needs to be signed by April 30, 2010 to be eligible. First time homebuyers are allowed a tax credit equal to the lesser of $8,000 ($4,000 for a married individual filing separately) or 10 percent of the purchase price of the principal residence. The tax-credit can be claimed next year (2010) when filing 2009 taxes.
Starting November 2009, existing homebuyers will receive a $6,500 tax credit for the purchase of a new home ($3,250 if single buyer). To be eligible, they have to have lived at their current residence at least 5 years, and need to have signed a binding home purchase agreement by April 30, 2010, and have closed on the contract by June 30, 2010.
The income eligibility for first-time and existing homebuyers was also extended to $125,000/year for individuals and $225,000 for married couples.
A limitation on the price of the residence was introduced into the bill - the tax credit only applies for purchases of up-to $800,000 (no credit will be given if the purchase price of the residence exceeds this amount).
FHA program
The FHA (Federal Housing Authority) has introduced an important recent addition to the stimulus incentive for those first time homebuyers that acquire their home through the FHA insurance program. They can have access to the $8,000 at the moment in which they buy the house and can use the proceeds to increase their downpayment/equity in the homes they are purchasing - they do need to have at least a 3.5% downpayment that does not include the $8,000 tax credit to qualify. Here is the abridged version of how it works:
For first time homebuyers applying for an "FHA loan" (a loan insured by the FHA), their lender (which must be in the approved list by FHA, most reputable banking institutions are - you can check for approved lenders here: http://www.hud.gov/ll/code/llslcrit.cfm) can extend the individual/couple a "bridge loan" for up to the full amount of the tax credit (up to $8,000). The money can be used towards the down-payment for the house or paying closing expenses.
Individuals/couples that apply to receive the tax credit up-front are required to pay the "bridge loan" once they receive the tax credit payment from the federal government when they file their 2009 taxes.
The $8,000 can not be used in substitution of the minimum 3.5% downpayment that first time homebuyers need to have to be eligible - the advance on the tax credit can not be used for that purpose.
The FHA imposes a limit on the size of the loans that it is willing to insure; these limits vary depending on location - the following link lets you find what the limits are in your area: https://entp.hud.gov/idapp/html/hicostlook.cfm
If you are a first-time homebuyer and qualify for the FHA loan, your best bet is to talk to your bank to see if they are participating on the "FHA bridge loan" program, and they will be able to do the paperwork for you and give you the information you need. You can also call (800) 569-4287 to get guidance from HUD.
State Incentives
Some states are providing programs of their own to provide "advances" to first-time homebuyers of the credit. Rules vary by state, but the following states have programs in place: Colorado, Delaware, Idaho, Kentucky, Missuri, Nebraska, New Jersey, New Mexico, Ohio, Pennsylvania, Tennessee and Virginia. You may want to check: http://www.ncsha.org/section.cfm/3/34/2920, to find out more details about local loan programs.
NOTE: Just to be clear - we are NOT a government sponsored site, and we try to keep the information on the site accurate and up-to-date. Nevertheless, there may be errors, and you should check the information on qualifications and other details for the plans with your mortgage agent. More information on the FHA program can be found by calling (800) 569-4287.