Loans for first time buyers

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Think about buying your first home? You need to save at least as much for the down payment and closing costs. But there are also a variety of things – federal and state grants, tax credits and other options – that you can explore to make it easier for first-time buyers to afford their first home. Even if you have owned a home in the past, you may qualify for these programs if you meet certain guidelines.

Read on to see how you can take advantage of such options. (for more information, visit: top homebuyer tradeoffs. )

First-time homebuyer definition

According to the U.S. Department of housing and urban development (HUD) first-time homebuyer is someone who meets one of the following conditions:

• A person who has not owned a primary residence during the three-year period ending with the purchase date of the property. A person's spouse is also considered a first-time buyer if a person meets the above criteria.
• A single parent who has only owned one home in marriage with a former spouse.
• A displaced housewife who has only one spouse.
• An individual who has owned only one principal residence that is not permanently attached to a permanent foundation in accordance with applicable regulations.
• A person who owns only one property that does not meet state, local or model building codes – and cannot be brought into compliance for less than the cost of building a permanent structure.

As long as you qualify as a first-time buyer as described above, the following options can help make your dream of buying a new home a reality.

Tax credit vs. Tax deduction

The first thing to understand about tax benefits is the difference between a tax deduction and a tax credit. "A lot of people think these terms are interchangeable," said lisa greene-lewis, a certified public accountant in san diego, calif. "A tax deduction reduces your taxable income, but your actual tax reduction is based on your tax bracket. A tax credit is a dollar-for-dollar reduction in the taxes you owe."

That means you save a lot more with a loan. "A $100 tax credit would reduce your tax liability by $100, while a $100 tax deduction would reduce your taxes by $25 if you are in the 25 percent tax bracket. , " said greene-lewis. (for more, see tax credits vs. Tax credits .)

Knock first timer benefits

Hud in. The first place to look for grant assistance is HUD. Although HUD doesn't give grants directly to individuals, it does give money to organizations earmarked for first-time buyers. To start is by checking out HUD's resources list.

Look to your IRA. Every first-time homebuyer is entitled to take $10,000 during their lifetime from their traditional or roth IRA without paying the 10% penalty for early withdrawal. "However, the federal government's definition of a first-time homebuyer is someone who has not owned a personal residence for three years," said dean ferraro, a mission viejo, calif., enrolled agent who could represent taxpayers before the internal revenue service. (IRS). Even if you owned a house in the past, if you meet the federal criteria, you are eligible to use those funds for a down payment, closing costs, etc. To create.

If you have a traditional IRA, you have to pay income tax on the money you withdraw. Roth IRA accounts will not be subject to additional taxes because they are taxed on money that is already taxed. Since each person has a lifetime amount of $10,000 that can be withdrawn from their IRA without penalty, a couple could withdraw a maximum of $20,000 combined to pay for their first home. Be sure to use the money within 120 days or it will be subject to the 10% penalty, ferraro warned.

Larger status programs. Many states – illinois, ohio and washington, for example – offer a down payment for first-time buyers who qualify. Typically, eligibility in these programs is based on income and may also have limits on how much a property can be purchased for. Those who qualify can receive financial assistance with down payments and closing costs, as well as costs for rehabilitation or improvement of a property.

Know about the options of the indians. First-time homebuyers of native american can apply for a section 184 loan. "Next to the no-cash-down loan, this is the best federal subsidized loan," ferraro said. This loan requires a 1. 5% credit advance guarantee fee, and only a 2. 25% down payment on loans over $ 50, 000 (for loans under this amount it is 1. 24%). Unlike a traditional loan interest rate based on the borrower's credit score, the interest rate on this loan 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.

Forget the federal tax credit. You may know someone who benefited from the homebuyer's first tax credit, but it ended on 1. July 2010.

Tax credits available to all home buyers

If you buy a first home, you are also eligible for tax benefits offered to any home buyer, be it their first home or not.

Mortgage interest deduction. "The IRS allows you to account for the interest you pay your lender," greene-lewis said. Home mortgage interest is one of the biggest deductions for those who list and can make a big difference for filers. You should be notified of interest that will be paid to your lender on a form 1098 that is mailed annually in january and/or early february.

Points or deduction of loan fees. The fees you pay to obtain a home mortgage can be considered a deduction, according to greene-lewis."Points are also reported on form 1098 by your lender or your settlement statement at the end of the year," she said, adding that the rules for deducting points for a first-time purchase or refinance vary.

Property tax deduction. Property tax deductions are available for state and local property taxes based on the value of your home. The amount deducted is the amount paid by the owner, including any payments made at closing or closing through escrow. "You can find property taxes paid by your mortgage company on your 1098 form if your property taxes are paid by your mortgage company," greene-lewis said. "Otherwise, you should indicate the amount of property taxes you paid for the year indicated on your property tax bill. "

Loan for housing energy. Homeowners who install solar panels, geothermal systems and wind turbines – or energy-efficient windows or heating and air conditioning systems – can receive a tax credit of up to 30% of the cost. Check the IRS's energy incentive list to see if you qualify.

Once you have considered all the tax benefits and deductions for which you are eligible, look for a mortgage lender that best suits your needs.

The bottom line

Homeownership costs go beyond down payments and monthly mortgage payments. Don't forget to consider both first-time homebuyers and other tax benefits and deductions to decide if you can afford a home and how much you can pay for a home.

"Make sure you factor in closing costs, moving costs, home inspection, escrow fees, homeowners insurance, property taxes, cost of repairs and maintenance, possible homeowners association fees and more," said JD crowe, president of southeast mortgage , georgia's largest nonbank lender and president of the mortgage bankers association of georgia.

If you know you can truly afford the home you choose, you have the best chance of living there for many years to come. , see: top tips for first-time buyers. )