NBC29Take advantage of extended home buyers' tax credits

Take advantage of extended home buyers' tax credits

By Andrew Housser

No doubt about it, a home mortgage is the largest debt most Americans will ever have. Fortunately for consumers, as part of the U.S. government's bid to aid the nation's recovery from the "Great Recession" of the past two years, Congress has extended the $8,000 tax credit for first-time homebuyers into 2010. Additionally, Congress added a new credit for those who are purchasing a home and have previously owned a home. Here is what you need to know about the credits.

1) What is the first-time homebuyer tax credit?

In 2009, the American Recovery and Reinvestment Act provided a tax credit of up to $8,000 for Americans who buy their first home this year. The definition of "first-time" buyers includes people who have never owned a home and those who have not owned a home for three years. Initially, that credit would have expired Dec.1, 2009. Congress now has opted to extend that tax credit for homes that go under contract by April 30, 2010. Buyers are eligible for the credit as long as the sale closes by June 30.

2) What about the move-up credit?

Homeowners who have lived in their current home for at least five years and who want to purchase a different home qualify for a $6,500 tax credit. The time frame is the same as above.

3) What are the income limitations?

Both credits start to phase out for home buyers who earn more than $125,000 for single people or $225,000 for married couples. Those with income over $145,000 (single) or $275,000 (married) do not qualify for the credit. 

4) Is there a catch?

Buyers must remain in the home for three years or repay the credit. Also, the credit is only available for first homes that are primary residences, and that cost less than $800,000.

5) Do you need good credit to qualify?

The credits do not require a certain credit level. But today, the best deals go to buyers with spotless credit. People with damaged credit might not be able to get a home loan at all, or may face high interest rates. Check your credit report and make sure to dispute any errors immediately; make copies of evidence regarding the error to discuss with your mortgage lender. Also, shop around for the right mortgage lender. It will not hurt your credit score to research mortgage rates and lenders. Credit scores do not decline if multiple similar credit report requests are submitted within a close time period (usually a few weeks).

6) What about home prices?

Home prices have increased slightly since the beginning of 2009, but in August, they were still about 11 percent lower than they were the previous year. That means now is a good time for a home investment for buyers who are financially prepared.

7) Are interest rates worth it?

Mortgage interest rates have dropped again this fall. They continue lingering just above 5.1 percent annually for a 30-year fixed-rate mortgage, close to historic low rates.

8) Do you need a down payment? 

Many mortgage lenders now require a down payment of 20 percent of the purchase price. If you cannot hit that threshold, ask your lender about your options before you get too far into the process.

9) Are great deals all they are cracked up to be?

Some seeming bargains on homes today are "fixer-uppers" or homes sold "as is" because of foreclosure. Others are "short sales," or sales for less than what is owed on the seller’s current mortgage. Before finalizing any home sale, invest in a home inspection (typically costing about $400). The inspection will inform you of any faults in the home and help estimate the cost to remedy those problems. Short sales have other complications. Because any such sale must be approved by the bank, these homes may have a long sales and negotiation process. Additionally, short sales are usually "as is," which may entail more risk than many first-time buyers could or should take on. Instead, look for a good value in a conventional home sale.

If you are in the market for a first home, or a new home, the current tax credits are a wonderful opportunity. As long as you make sure not to get over your head in debt, you might find that the next six months are the perfect time to buy a piece of the American dream.