First time buyer, 8,000 tax credit, Advice?

Question

Hello everyone, im kind of walking blind here, and hoping to get some good advice from you all!

I live in Yakima, Wa and pay around 675 for rent, where i live you can get a decent house for around 100,000 grand ( Starter home ) 
          
          Im just finding out about this tax credit, and wondering if this could almost be my ticket to get a small house and own my house at the age of 22.
          
          My Questions to you guys, 
          
          How much of a down payment am i looking at for a house around 100k? 
          
          Being a first time buyer, do i receive any other type of benefits? (besides the assistants with a down payment etc )
          
          someone was telling me i could get around 12,000 if i buy a house before dec 1? But doing a little research on my own, its 10% of the house's value, up to 8,000.
          
          i was thinking of taking the 8,000$ and setting up a bank account and pay my payments through that account while making another nest egg to pay rent while i attend a trade school, anyhow im getting off subject here..

Is there anything you guys could point me out on what to read, do i take a class for first time buyers program ? i have around 1,000 cash on me, would 5 grand be enough for starting out? 
          
          Please ask me any questions that could help you help me go in the right path! 
          
          Thanks guys, and sorry if this has been posted before, i did a search and didnt find anything!  :mrgreen:

Jon Holdman · Answer

I think you may misunderstand a bit about how this tax credit works.  Its a refundable tax credit you get when you file your 2009 taxes.  Refundable means you can get it even if you don't owe taxes.  Say your taxes for 2009 are $3,300.  If you're like most people you over withhold, and your taxes paid end up being $3,800.  You'd get a $500 refund.  With the tax credit, your refund would be $8,500, even though you didn't pay that much.

You get this money when you pay your taxes, not when you buy the house.

The lowest down payment commonly available is FHA.  That requires a 3.5% down payment.  In addition, you'll have closing costs, loan origination fees (I assume this apply to FHA loans, too, but perhaps not), inspection fees, appraisal fees, and prepaid taxes and insurance.  I'd estimate to buy a $100K house you would ned $3,500 for down payment and about $3,000 for all the other costs.

It is possible to get a short term loan based on the $8K tax credit to be used to cover these other costs and to add to the down payment.  You can't use the short term loan to actually get any cash at closing.  This HUD mortgagee letter, HUD Using First-Time Homebuyer Tax Credits, gives the details.

So, you could get a short term loan for about $3000 (plus the costs of this loan) to cover the closing costs.  If I'm reading this correctly, you still must come up with the $3,500 down payment.

Once you file your 2009 taxes and get the $8000, you would pay off the $3000 loan and have $5000 in your pocket.

I estimate the PITI payments on a $100K house with an FHA loan to be around $650 and that you would need about $2,100 in monthly gross income to qualify.  Don't really know taxes or insurance in your area, so this is just a guess.  Speak with a lender to get a better guess and to find their actual qualifications.  If you have other payments like car payments or credit cards, you may need more income to qualify.

I don't understand this:

You're not going to get this credit until you buy something and then file your taxes.  Why would you be paying rent, too?  This credit only applies to owner occupied property, so you have to live in the house you buy.

Lynn brings up some good points.  Houses create lots of costs besides the PITI payment.  That can be tough for first time home buyers who are moving from a rental to a house they own.  With a rental, the landlord takes care of most things.  With a house you own, you're on your own.  If the heater breaks on Christmas eve, its your problem to pay a premium for someone to fix it or replace it.  When you first buy a property, you'll have all sorts of little expenses.  Shower curtains, window treatments, lawn mower, etc.  This tax credit is intended, I believe, to ease that "I have to buy a what?" shock associated with making this leap.  Don't make too many plans for that cash since you'll have numerous expenses you aren't aware at the moment.

John Smith · Answer

this decussion of tex credit is good & spacific.1st time buyer are face many problems, those advice are really helpful for 1st time buyer.

Lynn Z · Answer

Look we've lost several tenants this year to the $8000 credit/buy and I'm happy for them.

Trouble is the last credit that was offered that one tenant took lost her house the following year and another is back asking to rent when he left to buy a couple of years ago.

Real estate (even the $100,000 deal with 20% down) takes emergency money not $1000.  It's just not sufficient.  Do you have a high FICO score and plenty of documentation of income to provide a lender to qualify for a mortgage? If you're going to school wait until you're out to buy.  Rent for now and --hey here's a noval thought--save alot of money to buy in the future.

If you buy, make sure you have someone go over the current property taxes that will be due, insurance costs and any closing costs that you have to pay. Don't forget a roof can cost $5000,
a hot water heater $600, a CH&A system $4000 etc. etc.  You have to pay immediately or get into trouble.

You're much better off renting until you have the money to make all of this work.

Susan Horton · Answer

It is not always the realtors who know all about the tax credits, but the loan officers. Since it is them you are getting the loan from, they are your best bet. Some lenders in my state have 100% financing for rural areas. I would suggest you call around to atleast 3 different lenders and take the one who can satisfy all your real estate needs the best.

Ariane Randolph · Answer

I would advise you to contact the local Realtor Board in your area. They will be able to answer the federal rules surrounding the tax credit and inform you of any state/local incentives or programs - if any. They also will be able to help you find a Realtor, if you don't have or don't know of one already, that can assist you in finding a home. But most importantly, your local Realtor  Board or an individual Realtor should talk to you about being preapproved before they show you any property. This is important because the mortgage  person is going to have the most knowledge on the best way to use the tax credit, based on your unique financial situation. You can check the National Association of Realtors website to find your Local Realtor or just Google  it! I hope this helps.

Ariane