Posted by Fred Lake

Credits For The First-Time Homebuyer

Credits For The First-Time Homebuyer

Homeownership remains a critical aspect of the American dream and there are several things you should know about federal and state grants, tax credits, and other options that are designed to make it easier for buyers to buy a home. Even if you have owned a home in the past, you can benefit from these programs if you follow certain guidelines.

Key Points to Note:

  • First-time homebuyers can withdraw IRA funds for home-related costs without penalty.

  • Like all home buyers, first-timers can take advantage of tax deductions on mortgage interest and energy loans.

  • Several options open the way for first-time homebuyers (which may include previous owners).

  • There are HUD issued grants and state programs to help first-timers.

Definition of a first-time homebuyer:

According to the HUD (Department of Housing and Urban Development), a first-time homebuyer meets one of the following conditions:

  • A displaced homemaker who has only co-owned with a spouse

  • A person who had no principal residence during the three years ended on acquiring the property. 

  • A person who has only one main residence not permanently attached to a permanent base per applicable regulations.

  • A person who only owns a property that does not conform to state, local or model codes cannot be satisfied for less than the cost of building a permanent structure.

  • A single parent who owned a house with an ex-spouse while married.

As long as you are eligible as a first-time homebuyer, as described above, the following options listed below can help make your dream of buying a new home come true.

Some new housing tax credits to exploit:

Once you know you qualify, you can take the appropriate steps to learn about one or more of the following new housing tax credits. Keep in mind that some of these tax credits are specific to first-time homebuyers, while others apply to everyone.

State-Level Tax Reductions For First-Time Buyers:

Some states offer programs designed specifically to help home buyers buy a new home. For example, in California, first-time homebuyers with credit scores above 640 and debt-to-debt ratios (DITs) below 45% (among other requirements) can apply for a variety of assistance programs of the California Housing Finance Agency. And in New York City, first-time homebuyers can qualify for various grants offered by the New York State Mortgage Agency, including pay-as-you-go loans. Please do some research to see what programs are available in your state and meet the criteria to take advantage of them.

Mortgage Loan:

The mortgage, which applies to all new home buyers whose income is below a certain income level, is an annual tax credit of up to $ 2,000. It differs from the Mortgage Interest Deduction, which is available to all homebuyers regardless of income, up to $ 750,000 paid in mortgage interest (formerly $ 1,000,000). That being said, buyers who are eligible for the loan and the deduction can benefit from both. However, the amount you receive from the mortgage must be deducted when the full amount of mortgage interest paid is factored in.

Property Tax Deductions:

Property taxes are another major expense associated with homeownership, but you can deduct these expenses, both state and local, from federal taxes. However, you can deduct the maximum amount. Although previously, it was possible to deduct an unlimited amount of property taxes paid, the Tax Cuts and Jobs Act, 2017, limited this deduction to $ 10,000 until at least 2028.

Residential Energy Credit:

There is always an incentive for eco-conscious homebuyers to improve their new home's energy efficiency: tax credit. All homeowners who install solar panels to generate electricity or wind turbines, solar water heaters, ground source heat pumps and fuel cells, which depend on renewable resources to generate energy in their home, are entitled to an energy credit of up to 30% of acquisition and installation costs. While this won't save you money when buying your home, it can lower the costs of fitting out your own home.

IRA Payments Without Penalties:

If you are considering opting out of an IRA to cover the cost of buying a new home, you are lucky. Although, in several cases, it will be almost impossible to withdraw money from these accounts before 59.5 years of age without paying tax on the amount withdrawn; for the first time, buyers can withdraw up to $ 10,000 of the IRA without incurring a tax penalty. If you are buying with a spouse, you can take advantage of this benefit in your individual IRA accounts. And you can withdraw paid contributions from your Roth IRA account at any time without any tax penalty.


Additional Financing Tips for First-Time Home Buyers:

The new homeownership tax credits can help ease the effects of buying a home, but they're not the only way to make your dream of owning a home come true. These additional tips can help you determine to fund and prepare for success.

Research all mortgage options: 

Not all mortgages are the same. Be sure to research all of your mortgage options, including those that offer incentives to home buyers. For example, some mortgages allow first-time homebuyers to deposit just 1% to 3% as payment, although mortgage insurance must be purchased until a certain principal amount is reached.

Get approved in advance: 

You always know what you are working on before you start looking for a home. This will help make sure that your purchase is on budget and that you don't fall for a home you can't afford.

Fred Lake
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