Home Financing

We are looking to buy our first home but we want to do it right and not put ourselves in a financial bind. We have a few credit cards and fairly tight budget.

What is the right approach?

ANSWER:

While buying your first home can be very gratifying, it will also be a significant financial commitment.

* 1) Figure out how much house you can afford. Total housing cost, including payment, taxes and utilities should not exceed 40% of your total monthly gross income. * 2) Most likely your first home will be a fixer-upper so make sure your budget includes room for repairs and upgrades. * 3) Have a cash reserve for sudden changes in income so that you don’t fall behind on your payments. * 4) If you have a lot of revolving debt, you may want to consider postponing your purchase and pay down your debt first. * 5) Know your credit score. * 6) Get pre-qualified so that you know what you can afford before you begin to search for the perfect home. * 7) Find out how much you will pay in closing cost. * 8) Make sure to take advantage of the first time homebuyer tax credit * 9) Do some shopping around. There is abundance of motivated sellers.

How does the new home buyer credit work? Can you cover some key points?Thanks; Mark.

ANSWER: First-Time Home Buyer Tax Credit

Tax credit of up to $8,000 is for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.

Who is eligible?

First-time home buyers purchasing a new home or resale. The ?purchase date’ is the date when closing occurs and the title of the property transfers to the home owner. First time home buyer is a person who has not owned a home during the 3-year period prior to the purchase. If you owned a rental property, but not a principal residence, you still qualify as a first-time home buyer.

Are there any income limits?

It is reduced and ultimately phased out at certain Modified Adjusted Gross Incomes levels:

For Single filers, the range is $75,000-$95,000, and for Joint filers, the range is $150,000-$170,000.

How do I claim it?

You claim it on your tax returns by completing IRS Form 5405 and specifically claiming the amount on Line 69 of your 1040 income tax return.

How is it different from the tax credit enacted by Congress in July, 2008?

The significant difference is that this credit does NOT have to be repaid.

(Source: National Association of Home Builders)______________________________________