November 18th, 2015 5:54 AM by Jackie A. Graves
Thinking of buying your first
home? You'll need to save for the down payment and closing costs. But there are
a number of federal and state grants, tax credits or other options designed to
make it easier for first-time buyers to afford their first home. In fact, even
if you've owned a home in the past, you may qualify for these programs if you
meet certain guidelines.
to the U.S. Department of Housing and Urban Development (HUD),
the government agency for the housing, a "first-time homebuyer" is
someone who meets any of the following conditions:
as you qualify as a first-time homebuyer, these options can help make your
dream of buying a new home a reality.
thing to understand about tax benefits is the difference between a tax deduction and a tax credit. "Many people think these terms
are interchangeable," says Lisa Greene-Lewis, a certified public
accountant and TurboTax expert in San Diego, Calif. "A tax deduction
reduces your taxable income, but your actual tax reduction is based on your tax
bracket, " she explains. “A tax credit is a dollar-for-dollar reduction in
the taxes you owe,” she says.
a lot more on a credit: "A tax credit of $100 would reduce your tax
obligation by $100, while a tax deduction of $100 would reduce your taxes by
$25, if you are in the 25% tax bracket," says Greene-Lewis. For more, see Tax Deductions Vs. Tax
Home in on HUD. The first place to look for grant assistance
is HUD. Although HUD does not make grants
directly to individuals, it does grant money to organizations that is earmarked
for first-time homebuyers. Check out HUD's resource list by clicking here.
Look to your IRA. Every first-time homebuyer is eligible to
take $10,000 during their lifetime out of their traditional or Roth IRA without
paying the 10% penalty for an early withdrawal. “However, the federal
government's definition of a first-time homebuyer is someone who hasn't owned a
personal residence in three years,” says Dean Ferraro, a Mission Viejo, Calif.,
enrolled agent authorized to represent taxpayers before the Internal Revenue Service.
So even if you owned a home in the past, if you meet the federal criteria,
you’re eligible to tap into these funds for a down payment, closing costs, etc.
If you have a traditional IRA, you will have to pay income tax on the money you
withdraw. Roth IRA accounts will not be subject to additional taxes as they are
funded with money that’s already been taxed. Because each person has a $10,000
lifetime amount that can be withdrawn penalty-free from their IRA, a husband
and wife could withdraw a maximum of $20,000 combined to pay for their
"first home." Just be sure to use the money within 120 days or it
does become subject to the 10% penalty, Ferraro cautions.
Size up state programs. Many states –for example, Illinois, Ohio and Washington –
offer down payment assistance for first-time homebuyers who qualify. Typically,
eligibility in these programs is based on income and may also have limits on
how expensive a property can be purchased. Those who qualify may be able to
receive financial assistance with down payments and closing costs as well as costs
to rehab or improve a property.
Know about Native American
American first-time homebuyers can apply for a Section 184 loan. “Next to the no-money-down VA loan, this is the best federal-subsidized
loan offered,” says Ferraro. This loan requires a 1.5% loan up-front guarantee
fee, and only a 2.25% down payment on loans over $50,000 (for loans below that
amount, it's 1.24%). Unlike a traditional loan's interest rate being based on
the borrower's credit score, this loan’s rate is based on the prevailing market
rate. Section 184 loans can only be used for single family homes (1-4 units)
and for a primary residence.
No longer available: a federal
tax credit. You may
know someone who benefited from the federal first-time homebuyer tax credit, which ended on July 1, 2010. This
program has ended.
first home also makes you eligible for the tax benefits afforded to every
homebuyer – whether it's their first home or not.
Home Mortgage Interest Deduction. “The IRS allows you to deduct for the
interest you pay your lender,” says Greene-Lewis. Home mortgage interest is one of the biggest deductions for
those who itemize, and can make a huge difference for filers. You should be
advised of interest paid to your lender on a 1098 form sent out annually in January and/or
Points or Loan Origination Fees
Deduction. The fees
you pay to obtain a home mortgage may be applied as a deduction, according to
Greene-Lewis. “Points will
also be reported on Form 1098 from your lender or your settlement statement at
the end of the year.” The rules for how you deduct points are different for a
first purchase or a refinancing, she explains.
Property Tax Deduction. Property tax deductions are available for state and local
property taxes based on the value of your home. The amount that's deducted is
the amount paid by the property owner, including any payments made through an
escrow account at settlement or closing. “You may find property taxes paid on
your 1098 form from your mortgage company if your property taxes are paid
through your mortgage company,” says Greene-Lewis. “Otherwise, you should
report the amount of property taxes you paid for the year indicated on your
property tax bill.”
Residential Energy Credit. Homeowners who install solar panels,
geothermal heat systems, and wind turbines – or energy-efficient windows or
heating and air-conditioning systems – to their home may receive a tax credit
worth up to 30% of the cost. Click here for
both first-time homebuyer and other tax benefits and deductions in deciding
whether you can afford to buy a home and how much you can pay for one.
Homeownership costs extend beyond down payments and monthly mortgage payments.
sure you factor in closing costs, moving costs, the home inspection, escrow fees, home
insurance, property taxes, costs of repairs and maintenance, possible
homeowners association fees and more,” says J.D. Crowe, president of Southeast
Mortgage, Georgia’s largest nonbank lender, and president of the Mortgage
Bankers Association of Georgia. Knowing you truly can afford the home you
choose gives you the best chance of being able to live there for years to come.
Gina Roberts-Grey – To view the original article click here