First time home buyers get a boost

Much hoopla has been made recently about all the negatives in the Real Estate world. Many folks' home value is less than their mortgage ... contractors aren't building many homes right now ... lots of foreclosures, etc.

One of the winners of all this is the "perfect storm" that has occurred for first- time home buyers.

A lower price means more affordability. Lower long-term interest rates means you're able to afford a larger home. And the bonus that makes it all possible for somebody with zero savings is the First Time Home Buyer Tax Credit. There is a catch on that last benefit - Your contract must be in place by May 1, 2010 and must close before July 1, 2010.

Now is the time to go out there and start making offers on your "dream home" in order to qualify for the credit before it expires. To qualify, the home must close before the expiration date. Just signing an offer doesn't count. When you consider in the fact that borrowers have tightened up their lending standards, and you've never had a mortgage before, it may require some extra time and effort to get approved.

How does it work?

You actually have to purchase the home first. (That might make the purchase a bit difficult. One solution might be to get the seller to take back a second for the $8,000 credit payable when the refund is received from the IRS.)

You then file an amended 2008 tax return (or file your 2009 tax return ASAP if you are applying for the credit after December 31st 2009). The actual credit is claimed by using form 5405.

Compute the credit. Your credit is actually the smaller of $8,000 ($4,000 if you're married filing separately) or 10% of the purchase price of the home.

There is a limitation. If your Adjusted Gross Income is more than $225,000 ($125,000 if you're single), the credit goes down and disappears completely when it is greater than $245,000 ($145,000 if you're single).

One last idea on how to get over the hump of buying your first home. Use the "family bank". Your challenge is to find a family member who may be earning low interest on their CDs, and is willing to loan you enough to make the required down payment. It would be best to use a Title Company to properly make the loan secured by your home (so you can deduct the interest and they feel more secure about their life savings).

More good news! Congress just passed a new credit for existing home buyers...but it's not exactly the same.

• Kelly Bullis is a Certified Public Accountant with over 30 years of experience. Contact him at 882-4459