How to use the $8,000 tax credit for a down payment

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All of a sudden, you're $8,000 closer to buying the American Dream.

Uncle Sam just made it easier to buy foreclosures by allowing first-time homebuyers to use an $8,000 tax credit for a down payment or other closing costs. Best of all, the $8,000 doesn't have to be repaid. That's an offer you can't refuse. Even in a sputtering economy, the $8,000 tax credit, historically low interest rates and plenty of bargain foreclosure inventory can make your first home buying experience a reality. But time is running out. The $8,000 tax credit ends on Dec. 1. No worries, though. With RealtyTrac, the American Dream is at your fingertips. Sign up for our 7-Day FREE Trial and declare your independence and financial freedom by using Uncle Sam's dollars to help you buy the bargain home of your dreams! $8,000 First-Time Homebuyer Tax Credit Q&A When do I need to purchase to qualify? If you buy a home between Jan. 1 and Dec. 1 this year and close escrow during these dates, you will qualify for an $8,000 tax credit - as long as it is your primary residence and you meet the simple requirements. How does the law define "first-time homebuyer"? The law defines "first-time homebuyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. What are other requirements to qualify? All U.S. citizens who file taxes are eligible to participate. An income limit of $75,000 a year for individuals and $150,000 a year for joint filers also applies. How do I apply for the credit? Taxpayers should use IRS Tax Form 5450 to claim the first-time homebuyer tax credit. Does the credit have to be repaid? No. Unlike a similar tax credit passed in 2008, this $8,000 tax credit does not have to be repaid to the IRS. Can I use the tax credit toward a down payment or other closing costs? Yes. An announcement made May 29 allows the tax credit to be used toward purchase costs of a home, including down payment in some cases. This can be done one of two ways. First, buyers using an FHA-approved lender can sell their anticipated tax credit to the lender and use the proceeds to immediately apply the tax credit to any down payment above the minimum down payment of 3.5 percent required with FHA-insured mortgages. Second, buyers who receive financing through state housing finance agencies and certain non-profits will be able to use the tax credit for their down payments via a tax credit advance loan that does not result in any cash back to the buyer.

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