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You Might Qualify for the Tax Credit and Not Even Know It!

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By : Mike Lesmeister    99 or more times read
In 2009, roughly 2 million people took advantage of the $8,000 Federal First Time Homebuyer Tax Credit and low mortgage rates, which has helped to stabilize the housing market and provide attractive incentives to potential home buyers. The timing for buyers couldn't have been better with discounted home prices and record-low mortgage rates combining to drive housing affordability to its most attractive level since the 1970's.

Unfortunately, many home buyers who did not qualify under the "first-timer" definition last year were not invited to the party.

Fortunately, the extended and expanded version of the tax credit now allows many more Americans to take advantage of these generous government housing incentives. In addition to increasing the income thresholds to $125,000 for individual taxpayers and $225,000 for joint filers, existing home owners can also qualify for the credit.

Previously, only buyers who had not had an ownership interest in a home for the previous three years qualified. The expanded credit allows "move up" or "repeat" home buyers to also claim up to a $6,500 tax credit as long as they have lived in their home as a primary residence for five consecutive years out of the past eight. This provision was meant to discourage speculators and incent responsible long-term homeowners.

Robert Dietz, economist for the National Association of Home Builders, estimates that up to 70 percent of American households may qualify for the expanded homebuyer tax credit, however, the National Association of Realtors expects that only an additional 900,000 first-time homebuyers and 1.5 million repeat buyers will take advantage of the expanded tax credit in 2010. While those numbers are certainly not insignificant, they barely scratch the surface of the potential of this financial incentive.

Certainly, any buyer would need to have a reason to buy a new home, and a tax credit shouldn't be one of them. However, for buyers who plan to reside in the same area for a number of years, expect to have stable income and employment, have lifestyle needs that can be met through homeownership, the financial incentives both short- and long-term are extremely attractive. Mortgage rates are still close to 5% and home prices have not shown any material improvement.

To take advantage of the credit, home buyers must enter a purchase contract by April 30th 2010 on a home with a sales price of no more than $800,000, and close on that home by July 1st, 2010. The tax credit can be requested by filing IRS Form 5405. As a refundable tax credit, you need not even owe the full amount of your requested tax credit in taxes, the IRS will provide you with a check for the difference. To put this tax savings in perspective, the Congressional Research Service (CRS) report estimates the effect of the 2009 tax credit on mortgage payments equates to an average monthly mortgage payment savings of $49 and annual savings of $589 for homeowners.

The process all starts with getting pre-qualified for a mortgage. Credit terms today are likely different than they were when you received your current mortgage, so you want to make sure you can qualify before you go spending hours online and in the car looking at new homes. Once your lender qualifies you, you can then enlist the assistance of a local real estate agent to provide you with a listing of homes that meet your criteria.
Mike Lesmeister, CRMS, is a licensed mortgage broker and partner with Home Loan Specialists, Inc. a Houston-area mortgage lender specializing in low rate mortgage refinancing in The Woodlands, Spring, Tomball, Conroe, and Houston, Texas.

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