Explaining the federal program to help first-time buyers

The American Recovery and Reinvestment Act of 2009 gives first-time home buyers substantial motivation to purchase a home this year.
This is one component of the bill that funnels directly into the bank accounts of average citizens. Individuals benefit, businesses benefit and local economies benefit.
Anyone who has not owned a primary residence within 36 months from the date they close escrow, is eligible to receive a direct tax credit of up to $8,000 if they buy a home between January 1, 2009 and November 30, 2009.
We are not talking about a deduction from your taxable income, folks. This is a direct bottom-line reduction in the amount of income tax you have to pay the Internal Revenue Service. If you only owed the IRS $3,000, they will give you the other $5,000! I am not joking.
Of course, there are limitations. If you are a single person who earns $75,000 or less this year, or a married couple earning no more than $150,000, you are eligible for the full $8,000 tax credit.
For those who earn more than these limits, a partial credit is still available. The final cut-off is $95,000 for individuals and $170,000 for couples.
Surprisingly, there is some flexibility and creativity baked into the tax credit. You can apply the credit to your 2008 tax return and get your refund now, if you wish.
If your income was under the limit last year, but this year you will be above the limit, you can claim the lower income as the basis for your tax credit.
If you need to build up some down payment money so you can buy before the end of the year, the provisions of this act will allow you to increase your take-home pay.
Here’s how it works. You are allowed to increase your exemptions and lower your tax withholding on your paycheck. As long as you go ahead with your plan to buy a home in 2009, there is no penalty for making this reduction.
If you were to buy a home for $228,000 and use Federal Housing Administration financing, the tax credit would equal your entire down payment on that house. If you had asked the seller to pay your closing costs (allowable to 3 percent of the sales price) then your net out-of-pocket would be a big fat zero.
You cough up the down payment — which can be a gift under FHA rules — and the federal government reimburses you with the tax credit.
Other important points: You must remain in the home for three years from the date of purchase in order to keep the $8,000 refund.
The credit is good for the purchase of a primary residence whether it is a single-family dwelling, a condominium, a manufactured home or even a houseboat.
Let me clarify that the credit is limited to the lesser of $8,000 or 10 percent of the purchase price. So, if you find a home for $65,000, the maximum tax credit is $6,500.
For more information go to: www.federalhousingtaxcredit.com/2009/home2.html.
David Ryland is a licensed mortgage broker with 29 years of experience as a lender in Placer County. He is the dean of loan originators at Big Valley Mortgage in Roseville.