A triple play like this one probably won't happen again in your lifetime:
- Money's cheaper than dirt.
- Home prices have been knocked back to 2003 levels.
- The federal government wants to pay you up to $8,000 for buying a house.
With that tax incentive, average credit and less than $2,500 in savings, it's possible to buy a $150,000 starter home for about $1,000 a month, taxes and insurance included.
"It may be the best time to buy a home that we've seen in this generation -- for everybody but particularly for first-time homebuyers," says Brad Blackwell, a national sales manager for Wells Fargo Home Mortgage. The flood of homes for sale is hard on sellers, but it gives buyers an unusually wide selection, he points out.
It's a memorable moment for responsible buyers who've been waiting to own a home. While the new tax credit is just the kicker some buyers have needed, historically low interest rates take some risk out of buying now. Waiting for lower prices might be a false economy if you lose a great rate. The monthly payments on a $200,000 mortgage at 5% and a $180,000 loan at 6% are about the same.
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Most people who want to buy are stuck with a home to unload first. First-time buyers don't have that problem. But many don't have the down payment money either.
The $8,000 federal tax credit solves that. It is literally a gift: All you need to do is buy a first home for $80,000 or more to receive a 10% -- to a maximum of $8,000 -- rebate from the government, even if you had no taxes withheld.
The government is even letting homebuyers with Federal Housing Administration mortgages borrow against the tax credit right now -- it's called a bridge loan -- and then repay it at tax time.
"I just heard a story yesterday about a recent college graduate who bought a single-family residence in the Phoenix area -- 2,000 square feet for $70,000, and they got the tax credit," Blackwell says.
Is this for you?
You can get the tax credit if:- You have not owned a home in the past three years.
- You're single and earning $75,000 or less, or a married couple earning $150,000 or less. Singles earning up to $95,000 and couples earning up to $170,000 can apply but get less than the full credit.
- You close on a home purchase by Dec. 1, 2009.
- Read the details at IRS.gov. You can claim the credit on your 2009 taxes or amend your 2008 Internal Revenue Service filing.
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Federal tax credit for homebuyersSome first-time buyers can now get a credit of up to $8,000 upfront through local housing finance agencies.
There are several ways to get your hands on the credit before tax time, but it's important to know the ground rules. Legally, a mortgage lender can't offer any assistance in meeting minimum down-payment requirements. A bridge loan arranged through the mortgage lender can be used for virtually anything except your minimum down payment: closing costs, moving expenses, or even a down payment over and above the minimum.
But if you borrow the $8,000 through family, friends, retirement accounts or any means other than your mortgage lender, you can use it as a down payment.
In either circumstance, you'd repay the loan at tax time. Here's where you can look:
- You can get a short-term loan from FHA-approved lenders or a HUD-approved nonprofit agency. (Locate an agency near you by calling 1-800-225-5342, or ask your state housing finance agency.) You cannot use these loans to meet the minimum down payment itself, but you can use the money for your closing costs, or for a down payment above and beyond the minimum.
- Ten states (Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania and Tennessee) offer residents bridge loans through housing agencies. See details here, from the National Council of State Housing Agencies. You can apply these loans directly to your down payment. Separately, Californians can get a state income tax credit for a new (not existing) home purchased between March 1, 2009, and March 1, 2010. See guidelines here.
- Use a family gift or loan. Some first-time buyers are using Virgin Money to set up and manage a loan from family, intending to repay it with the tax credit, says Tim Burke, a social-lending sales manager at Virgin.
"We can set it up as an unsecured promissory note or as a second mortgage," Burke says. For loans under $10,000, no interest is required, and you don't have to report the money as earned income to the IRS.
- Borrow from your 401k plan. Ask your plan administrator how that's done.
- Employer assistance: If you move for a new job, housing assistance from your employer can be used for a down payment.
Continued: How not to go overboard
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. Has there been any talk about extending this thru the next year???