Do You Qualify for the First-Time Homebuyer Tax Credit?
Buying your first home is a huge benchmark, and almost always an expensive one. With the high cost of housing, accommodations never come cheap, and owning a property comes with a high price tag. But all the same, you and your family need a place to live and grow, so you’ll have to find a way to bring the price down to your budget.
Several options are available for prospective homeowners to help save money on their real estate purchases. Still, individuals looking to buy their very first home have access to some exclusive savings opportunities. One of these exciting options is the first-time homebuyer tax credit.
So what exactly is this tax credit, and how does it work? Who can take advantage of this opportunity, and what exactly does it entail?
We have the answers to all these questions and more. Read on below to learn how to qualify for first-time homebuyer tax credit.
What is a First-Time Homebuyer Credit?
Before you learn how to qualify for a first-time homebuyer tax credit, you must understand what this tax credit is.
A first-time homebuyer tax credit is financial assistance the United States government offers to citizens purchasing their first home. It works by offering a substantial tax credit for the year when the buyers purchased the home to offset the cost significantly.
This initiative first started in 2008, when a tax credit of $15,000 was offered to new homeowners. While this exact program is no longer available and there are currently no tax credits available for 2022, there is a similar program in development.
What is the New First-Time Homebuyer Credit Bill?
The First-Time Homebuyer Act of 2021 is a new program recently introduced and is awaiting government approval. It was spearheaded by Earl Blumenauer from the House of Representatives on April 26, 2021, to help Americans who are struggling financially to afford secure housing.
This bill has yet to be approved by Congress, so interested parties would be advised to keep an eye out for new developments soon. If the president signs the bill into law, it can be a great opportunity for many Americans to purchase their first homes.
What Specific Benefits Will the Bill Offer First-Time Homebuyers?
If approved, the bill will allow individuals to purchase their first home in the United States to claim a tax credit at the end of the same year. The value of the credit can be 10% of the property’s price, so long as this amount is no greater than $15,000.
The tax credit details may differ depending on how one files for taxes. For instance, if a married couple files for taxes separately, the credit is limited to $7,500 for each individual.
How Do You Know if You Qualify?
Wondering how you qualify for first-time homebuyer tax credit? The stipulations to be eligible for the tax credit are as follows:
- You must be purchasing a principal residence, meaning your primary home where you reside and that it is the first time you have purchased a home.
- The property must be located within the United States.
- Additionally, this tax credit is intended to benefit individuals and families of low to moderate-income and members of communities that have been historically marginalized.
What Other Ways Can First-Time Homebuyers Save Money?
Of course, the first-time homebuyer tax credit isn’t the only way prospective homeowners can save money on their real estate purchases. There are many other options to choose from, each with its unique benefits and drawbacks.
Let’s take a look at some of the most popular ways to save on a new home.
Get Assistance from the Department of Housing and Urban Development
The Department of Housing and Urban Development is a significant provider of housing assistance for Americans in need. They offer a wide variety of different grant and loan programs targeted towards people looking to buy a home. They can also help by providing professional advice for your housing and financial options.
The Federal Housing Administration is a good resource for home loans and mortgage programs. Do some research on programs in your area, and you’ll be surprised how much assistance is available.
Apply for a Mortgage Credit Certificate
A similar, but not identical, program to the tax credit described above is a Mortgage Credit Certificate. This is another vehicle through which the Internal Revenue Service offers tax credits to first-time homebuyers.
Unlike the forthcoming bill, this option is associated with some troublesome hidden fees, so it might not be the ideal resource for everyone.
Look into First-Time Homebuyer Loan Programs
Home loans are a great resource for people who need assistance putting a down payment on a new residence. For people buying their first home, there are specific loan programs with special benefits that can help.
Fees will depend on the lender. However, some lenders promise little to no fees for first time buyers. These programs are perfect for individuals and families with limited income and below-average credit scores.
Withdraw Funds from Your IRA
If you have a Roth IRA or a traditional IRA, and you’re looking to buy your first home, the IRS will allow you to withdraw up to $10,000 from these accounts to go towards the purchase.
You will be taxed on this money at the end of the year, but you won’t have to pay the 10% fee usually associated with an early withdrawal.
Your First Home is Just One Step Away!
Now that you know how to qualify for first-time homebuyer tax credit, it’s time to get started finding your new home. It can be tricky to navigate all the complicated aspects of buying a property, but the experts at Associates Home Loan are always here to help.
When you’re ready to start the financial planning process, contact our team via our website so we can help.