Understanding The First-Time Home Buyer Tax Credit...(simplified)

Understanding The First-Time Home Buyer Tax Credit...(simplified)

Understanding The First-Time Home Buyer Tax Credit

Let's put this is basic laymen terms. In May the government rolled out a policy change that allows home buyers to use the tax credit worth up to $8,000 toward closing costs or part of their down payment instead of having to wait for the next tax season to take advantage of the program. It's working and is a huge incentive for homeowners to take the plunge and buy a house.

For homebuyers interested in taking advantage of the loan there are many lenders that can provide assistance with the program and the most active lender is the Federal Housing Administration (FHA). For more information go online to find FHA approved lenders in your area at http://www.fhaoutreach.gov/FHALookup/.

The FHA offers a first time home buyer (you qualify if you have not purchased a home in the last 3 years) loan with a 3.5% down payment. This is probably the most popular loan on the market because of the low down payment and when using the First Time Home Buyer Tax Credit with an FHA loan you will still be required to have the 3.5% down payment from your own funds but you can use the tax credit, which is given as a short term loan, to pay closing costs and prepaid expenses including escrows for taxes, insurance, and community association assessments.

Another creative use of the funds is it can be used as an additional down payment allowing you to "buy down" the interest rate on the mortgage and give you an even lower payment!

Prospective home buyers or real estate investors looking to occupy a new home would be wise to take advantage of the First Time Home Buyer Tax Credit which can be used to purchase a principle residence before December 1, 2009.

Author: Gerald Romine





I remember reading somewhere that to get tax money for a home you need to live in the home for a certain amount of time like 6 months or a year. If my partner and I buy a multi unit property for an investment, would we still be able to get this 8k or no? We would not be living in it but renting to tenants, it would be a first home for both of us.



This train, Dreams will not be thwarted
This train, Faith will be rewarded
Big wheel roll through fields where sunlight streams
Meet me in the Land Of Hope And Dreams

Bruce Springsteen


For what I understand you have to live on the property and I hope that helps


tax credit

I'm in the process of buying a muti family unit as a first time home buyer but my lender is saying I have to file for the 8,000.00 credit does anyone know if this is true and can I file now of have to wait to the end of the year?

Need help to go in the right direction.


b.smith... talk to someone else first to clarify it - I am not a CPA, but I will try.

I thought I read somewhere it was single family homes, but it could be multi family as well. Also, why does the lender say you have to file for it now?

The $8,000 credit assumes the property was bought for $80,000 or more.

A tax credit is a partial payment for what you owe in taxes. Like any tax credit, that $8,000 isn't a check from the IRS - it simply gives you an $8,000 in credit toward you taxes. I do not know if it can be applied to following years taxes, or if any credit balance is void.

I don't know how you could file for it now. It would mean filing your year end taxes from what I understand. Maybe he means to change your federal withholding on your paycheck to $0, since you will be getting a credit, you want to keep as much as you can?

Again, I would find out exactly what he is asking you to do and why.


Yes, it tax credit says it has to be your primary residence. But if it is your first house that would be assumed anyways I would think.

You can live in your first investment for a while then rent/sell it. I haven't looked the details yet to see if there is a period of time you must reside in it - if it is 1 day, 1 month or 1 year... or maybe it isn't even specified?

Tax Credit

Buyers who have not owned a home for three years or longer and first time home buyers are eligible for an $8000 tax credit. The Federal Housing Administration (FHA)is monetizing the tax credit so qualified people can get the money right away through a bridge loan. The FHA is requiring 3.5% down because they believe if people have their own money invested they will be less likely to default.

Eligibility requirements for the home are single family homes, 2-4 unit properties, condominiums, double-wide manufactured homes and modular homes. Ineligible homes include co-ops, boarding houses, commericial properties, hotels, and private clubs. ***A home is ineligible if the seller acquired the house within the past 90 days.***

The new rules provided on May 29, 2009 FHA home loan applicants can apply for these bridge loans, but the loans cannot be used to meet the FHA's minimum 3.5% down payment. The money can be used for other expenses or be paid on top of the required down payment. (fha.com) 10% of the purchase price of the home will by the tax credit up to $8000.

This $8000 can be used for closing costs, buying down of interest, and additional down payment.

IRS Form 5405 - FHA lenders and HUD approved non-profit groups will be given authority to issue 'bridge loans' to cover the amount of the tax credit until the borrower gets tax money from the IRS after taxes have been filed. These bridge loans are meant to be short-term, intended only to provide access to the tax rebate money until it's paid to the buyer.

You do not have to repay the 2009 credit. You do have to pay back the short-term bridge loan with your tax credit. Your FHA mortgage or conventional loan is separate from the short-term bridge loan used to finance the down payment. Make sure you understand the terms of the bridge loan because it is so new most lending institutions are still trying to figure it out. (irs.gov) (hud.gov)
Denise Harlow


I am a first time home buyer and new investor. I am not clear about the tax credit. Can I use it for investment or do I need to use it for a home? I am just getting started and learning a tremendous amount of information. Also, in the area I am interested in for myself (in the near future) they allow rural develoment loans with 0% down still. Will that work with the tax credit?

What I did

I am a new investor and first time home buyer. I got a good deal on a brand new duplex in a good location. I was told I can file an amendment to my 2008 tax and I should have my money six weeks later. I thought I had to wait till '09 taxes were due. The form I have to fill out is Form 5405 First-Time Homebuyer Credit.

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