When you are trying to get together a down payment to buy a house, an extra $8000 would come in handy, wouldn’t it? But can the first time home buyer tax credit be used for a down payment?
Homer and Ivana were looking to buy a house and they could get a mortgage of $350,000 if only they had enough for a down payment. They had some money saved, and they qualified for FHA so they only had to come up with 3.5%. Sounds small enough, right?
3.5% of $350,000 is $12,250 and they had only $10,000 in the bank. They had calculated all their expenses and knew what it was going to cost to buy the house. They also had to come up with closing costs, moving expenses, furniture and appliances.
They were afraid they would have to buy a cheaper house because of the down payment. They knew that they could borrow $5000 from Ivana’s folks, but the lender wanted to see that they had the full down payment seasoned, and it still wouldn’t cover all of the closing costs.
When they heard about the tax credit for first time home buyers, they had some hope that it might be what they needed to make the down payment. But they would have to file their 2009 taxes before they could get the credit, wouldn’t they?
Actually, the tax credit can be applied to your 2008 income tax by filing an amended return.
You will have to file after closing so you won’t be able to use it for a down payment, but lenders will allow you to use borrowed money for a down payment if you qualify for the tax credit. They will waive the usual seasoning requirement for that portion of the down payment.
The tax credit can also be used for furniture or other expenses that don’t have to be paid at closing.
If the house needs any repairs, you can also negotiate with the seller for a repair credit which can be applied to closing costs or the down payment. Then you can do the repairs when you get your tax credit refund.
So while the first time home buyer tax credit cannot actually be used as part of your down payment, it can help indirectly to make the down payment more affordable.
If you need help figuring out your expenses and budgeting to save for a down payment, try Money Tree Budget Software. Money Tree walks you through setting financial goals, creating a budget to meet your goals and tracking expenses step by step.
Allen Davis
RealEstateSearchDirect.com
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A great idea to use with this new tax credit is to purchase improvements to the house such as windows and siding. I have actually helped people find all their window and siding projects done with solely this tax credit alone!
Thanks for the tip. If you get the seller to give you a repair credit for necessary improvements that can really help with the funds for closing, too. Then you use the tax credit to pay for the needed work.
Not only do you have the 8,000 dollar credit, you can also get energy efficient doors and windows and receive up to 1,500 — not too shabby huh?
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I have been recently looking into buying my first house and was doing a google search for this exact question and found your site. Thanks for the information – Im hoping they extend this 8000 new buyer credit as a lot of young people are looking to buy houses now!
Thanks for all the information!
I want to buy my first house but I don’t have much information about tax credit.So thanks for the tip Allen
thanks for the tip. that would be nice, i’m just a newly grad and I would like to invest for my own house.
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Thank you so much for sharing. One of my employees did this when she recently bought her first house.
This explains the situation well and this will be a good asset to many who need to make up an adequate deposit. First time home loan borrowers will be able to use this in many ways and they will probably benefit from some sound advice on what is the most beneficial for them in the long run. Remembering of course that rates will rise at some stage and to see they can take as much advantage of the low interest rate period and pay some extra off.
That’s really awesome. I didn’t know it was possible to arrange the tax credit to help buyers with the down payment. Maybe they will decide to bring the tax credit back within the next couple of years and I can run the idea by my lender and see what she says.