By Keith Reilly
If you have recently decided to move from renter to homeowner, you are not alone. First-time homebuyers made up 41 percent of the market, according the National Association of REALTORS®’ 2008 Profile of Home Buyers and Sellers. And price declines in many markets around the country have created unique opportunities for those considering home ownership for the first time.
As a homeowner, you have security and stability, the freedom to decorate and remodel, potential to build equity and tax benefits. And with interest rates still at historically low levels – 5.22% for the typical, 30-year fixed-rate mortgage (as of early August 2009), combined with ample inventory, now is a great time to buy.
Plus, there are several incentives and programs available specifically for first-time homebuyers.
First-Time Homebuyer Credit
One program that is a great financial opportunity is the highly publicized First-time Homebuyer Credit, which was part of the Housing and Economic Recovery Act of 2008. This federal initiative allows first-time homebuyers to take up to an $8,000 tax credit, which doesn’t have to be repaid, toward a new or resale property purchased prior to Dec. 1, 2009. For new construction, the purchase date is considered to be the date you first occupy the home.
Under this program, a first-time homebuyer is considered to be anyone who has not owned a principal home within the last three years. If you are married, both spouses must meet this criterion. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer. In addition, ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer. You are also eligible to claim first-time buyer status if you owned a principal residence outside of the United States within the last three years.
The actual tax credit may vary depending on the purchase price and your income. The credit is generally equal to 10 percent of the home’s purchase price, not to exceed $8,000. In addition, the income limit to receive full credit is $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return.
As a first-time homebuyer, you don’t have the advantage of using the equity in a previous property to help bridge costs associated with down payment, closing and other fees. Many financial institutions have mortgage products with you in mind. In addition, the Federal Housing Administration (FHA) offers mortgage programs in which your down payment can be as low as 3.5% of the purchase price, and allows most of your closing costs and fees to be included in the loan. Although FHA does not directly loan to consumers, you can work with a FHA-approved lender. For more information, visit www.hud.gov.
The transition from renter to homebuyer is a large step and is arguably one of the largest investments you’ll make, so make sure you take advantage of all the assistance available to make the road to homeownership that much easier.