US tax $8000 credit may help you buy house in 2009

You might be able to use the $8,000 first-time homebuyer credit to buy your house, instead of having to purchase the house first and then claim the credit on your tax return.

The U.S. Department of Housing and Urban Development says that the tax credit can be applied to cover purchase costs, including in certain cases the down payment, if you are taking out a mortgage insured by the Federal Housing Administration. This doesn't apply to other types of mortgages.

"It is a very attractive offering, and basically it addresses one of the hurdles that keeps more people from buying a home - getting help with the down payment or paying closing costs," says Bob Meighan, a vice president with TurboTax.

The first-time homebuyer tax credit, part of February's economic stimulus package, is worth up to 10 percent of the price of the home, but not more than $8,000. To qualify, you can't have owned a home in the previous three years, and you must buy the house this year between Jan. 1 and Nov. 30. The credit can be claimed next year when you file your taxes, or you can file an amended 2008 return to get it this year.

But according to recent guidance issued by HUD, you will be able to get the use of the money even earlier if you take out an FHA-backed loan with the help of a state Housing Finance Agency or from one of the FHA-approved nonprofits and private lenders.

There are no income limits to qualify for an FHA mortgage, although there are caps on the size of the mortgage. Limits differ from county to county. In Maryland, loan limits for a single-family home range from $271,050 in Allegany County to $729,750 in Montgomery, Frederick and Prince George's counties. In Baltimore City and Baltimore and Howard counties, the cap is $560,000.

There are two ways to tap the tax credit early:

You can get an advance on your credit from an FHA-approved lender or nonprofit. You will likely have to repay the money shortly after getting your tax refund, says Meg Burns, FHA's director of single-family program development.

Lenders also can charge a nominal fee - 2.5 percent of the credit or less - to make the advance.

The advance can't be used for the 3.5 percent down payment required under FHA-insured loans. But it can be applied to other purchase costs or to make a bigger down payment, thereby reducing your monthly mortgage payments.

For a list of FHA-approved lenders, visit www.hud.gov or call 800-CALL-FHA (800-225-5342).

The second way to tap the credit is through your state's housing finance agency, which helps low- to moderate-income homebuyers. Under this way, the agency lends you the amount of the credit. The loan terms, including any interest and the amount of time to repay, will vary from agency to agency, Burns says. The loan also can be used for the required 3.5 percent down payment or other closing costs.

Not every state housing agency or FHA-approved lender will participating in this tax credit program, so call in advance to find out.

For instance, Maryland's agency, the Maryland Department of Housing and Community Development, currently doesn't have a loan tied to the tax credit, but offers closing cost assistance worth up to $5,000 for first-time homebuyers who meet certain income limits.

Do you have questions about it? Call Tatyana Baytler: 443-527-4375