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First Time Home Buyer Tax Credit Applied to Down Payment

(10-27-09) The extremely popular first time buyer tax credit was a key part of the Obama Administration's economic stimulus package introduced in early 2009.

Under the credit, those earning up to $75,000 for single taxpayers and up to $150,000 for married taxpayers filing jointly, could receive a tax credit of $8,000 towards the purchase of a new home if defined as a “first time buyer”.

Under the program, a first time home buyer is someone who has not owed a primary residence in the previous three year period. The tax credit may also be claimed to a lesser extent by those whose earnings cap off at $95,000 for single taxpayers and $170,000 for married joint filers.

In the spring of 2009, the Federal Housing Administration (FHA), which operates under the supervision of the Department of Housing and Urban Development (HUD), announced that homebuyers using the first time buyer credit would be able to apply it at the close of a purchase transaction.

This meant that those first time buyer's who were purchasing with an FHA insured loan, could apply the credit at the time of closing towards their down payment as well as their closing costs. In an effort to further assist home buyers, individual state's Housing Finance Agencies (HFA) are set up to offer loans for down payment and closing cost assistance to low and moderate income home buyers.

The loans provided by the states could then be repaid immediately at closing through the use of the first time buyer tax credit, so the federal government, essentially, could repay the states. The problem with this scenario is that too many state's Housing Finance Agencies are under-funded due to state budget constraints.

Recently the federal government had announced plans to come to the rescue of the state's housing finance agencies, introducing new plans to support the financing of their home buying programs.

The government intends to establish a new bond purchase program for the state's housing issues and will also improve the state's housing agency's ability to access credit sources for their existing bonds.

For better or for worse, this should create even more interest and excitement around the so-called “first time buyer” tax credit.

Nancy Osborne, ERATE.com Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.