How to Take Advantage of the $8,000 Housing Tax Credit

If you've been waiting for the perfect time to buy a home, now is definitely it. The first quarter of the year yielded a 24% increase in foreclosures from the same term in 2008. With housing prices settling back down (to where they should have been in the first place) the buyer is in a prime position to reap big rewards off purchasing now. Interest rates are still hovering in the 5.7% range for a 30-year fixed loan, but the biggest incentive is first-time homebuyer tax credit.

No doubt you've heard the buzz surrounding the stimulus by now. But don't speed off to the bank just yet! Make sure you qualify to take advantage of the refund before signing on the dotted line.

• You must be a "qualified first-time" homeowner.
  This means you are purchasing your first home OR you have not owned within the past three years. You are limited to household income as well to get the full refund. Combined family income of $150,000 or a single man or woman earning $75,000 or less is eligible for the full amount. If you make more than that, you can send a check to me for the difference in order to qualify.
• You still need a down payment.
  Stay smart! Jumping into homeownership without any money is a big reason why we are in this muck in the first place. Unless you have money saved for a home, it is not a smart move to buy. Let's say you owe $1,500 at the end of 2009. You'll be issued a check for $6,500, so you don't want to rely on an exact amount. Although you can reduce your income tax withholding up to the full amount of the refund to generate cash flow, I wouldn't buy without a sizable down payment. Plus, this is the government we're talking about. Meeting deadlines and following through are last on their priority list.
• Buy at the right time.
  Any residence is eligible for the refund (house, condo, townhome), but it must be closed by December 1st of this year. Any purchase between January 1st and December 1st will qualify for the credit. If you already filed for the $7,500 return and want to refile to get the additional $500, complete a 1040X form. Purchase a home in 2008? Sorry. None for you.
• Be ready to stay in the home.
  This is no time to flip a house. The tax credit was created to offer an option to people who have been renting and can't afford to buy a home--not for real estate moguls. If you move within three years (for reasons other than death or divorce), expect to pay back the amount of your credit in full.
• Extra goodies.
  Uncle Sam will shell out $1,000 each year for five years to participants in the program who make their payments on time. Also folks who are underwater (105% over current home market value) will get some relief with the bill.

Overall we give this deal two frugal thumbs up. Make sure you discuss all your tax options with an accountant and your loan officer before finalizing your new purchase. This advice is not intended to replace the guidance of a certified tax accountant.