Using the First-Time Homebuyer Credit to Simplify the Homebuying Process
If you are a first-time homebuyer, you can take advantage of the first-time homebuyer credit to save money on your new home purchase. Hatch Realty will gladly guide you through the process and help you find your dream property. We can also explain the relevant tax credit to you in more detail, although the following information will give you a head start.
The Original First-Time Homebuyer Tax Credits — The Economic Recovery Act
The first time that the U.S. introduced a tax credit for first-time homebuyers was in 2008 during the Obama administration. The Housing and Economic Recovery Act (HERA) included a tax credit of $7,500. In 2009, the maximum tax credit for first-time homebuyers was increased to $8,000.
One important note is that this was a refundable tax credit that you had to repay over 15 years. If you sold the home during that time, you would have to repay it sooner.
This program ended in 2010. That being said, if you have bought your first residential property before Sept. 30, 2010, you can still take advantage of this tax credit.
But don’t worry — Hatch Realty is happy to tell you that the First-Time Homebuyer Act marks the return of tax credits for new homeowners.
The First-Time Homebuyer Act – 2021
The First-Time Homebuyer Act was introduced in 2021. This legislation includes a tax credit that is up to $15,000. The bill would allow first-time homebuyers to get a tax credit that is 10% of the purchase price of their tax residence in the tax year. Married individuals who are filing separately may have the tax credit capped at $7,500.
While this is a great option for first-time homebuyers, there is an important issue. It never left the committee, so it never passed. As such, we can hope that this tax credit will become available in the future, but it is not an option yet.
Deductions Can Reduce Your Tax Liability
While we wait for the First-Time Homebuyer Act to be reintroduced and passed, there are some other deductions that you can take advantage of. Many of these apply to anyone buying a home, whether or not it is your first home or primary residence. You can calculate your down payment and taxable income also, based on that.
Mortgage Interest Deduction
One incredibly useful tax credit is the mortgage interest deduction. This lets you deduct the interest on your mortgage balance of up to $750,000. If you are married and file your taxes separately, the limit is up to $375,000. If you bought your home before April 1, 2018, it was $1 million when filing jointly or $500,000 if you are married and file separately.
Origination Fee Deduction
When you buy a property, there will be a loan origination fee. You can typically deduct the points you paid for this mortgage origination. The deduction is typically divided over the life of your loan.
Property Tax Deduction
Homeowners can also deduct their local real estate taxes from a tax bill when filing their federal income taxes. The maximum deduction for this and related property deductions is $10,000 or $5,000, depending on if you are married and filing separately. That limit also includes local and state income and sales taxes.
Other Great Options for First-Time Homebuyers
In addition to the significant tax credit, hopefully, available soon at the federal level, first-time homebuyers also have access to other programs.
Look for First-Time Mortgages
Some lenders offer specific loans and programs for first-time homebuyers. These may give you a lower interest rate or a small interest-free loan, depending on the program.
HUD Loans
Depending on where you live, you may be eligible for a loan from the Department of Housing and Urban Development (HUD). At the very least, the department offers housing counseling to help you figure out what you can afford.
Mortgage Credit Certificates
Low-to-middle-income Americans may also be eligible for a mortgage credit certificate (MCC). This would be a tax credit for part of the mortgage interest you pay annually. It is complicated enough to require assistance from a tax expert.
Work with Your Realtor as Well
First-time buyers don’t have to try to navigate the various tax credits themselves. Your accountant can help when it comes to filing your taxes. In the meantime, your real estate agent can answer your questions about the various credits. Hatch Realty stays up to date with the various tax credit options, including the progress of the First-Time Homebuyer Act. This can save you a great deal of time searching online for information on tax credits and tax deductions.
Buy Your First Home with Help from Hatch Realty
Hatch Realty can do more than just explain the various credits to you. We are with you every step of the way as you search for a new home. Tell us what you are looking for, and we will find Fargo properties that fit your requirements. Once you choose a home, we will guide you through all of the paperwork and make the process as stress-free as possible.
Are You Ready for Home Ownership?
Owning a home may be your dream, but in order for the purchase to be the happy and satisfying experience it was meant to be, you need to ensure that you are financially and mentally prepared for the responsibilities that come with it. Our First Time Home Buyers program helps customers throughout the Fargo area secure home loans and prepare for this big step.
Some people have a notion that home ownership is like renting, but with the power to have pets and paint the walls whatever color you like. However, while these privileges are available to homeowners in most municipalities, they come with the responsibilities of a mortgage, taxes and home maintenance. Preparing for home ownership requires you to take critical stock of your finances and your expectations.
Questions for Prospective Homeowners
Are You Ready to Buy?
…it’s about being prepared to maintain your home over the years, realizing that part of your income and time will go towards repairs and maintenance. It’s about being willing to take the risks of home ownership with a realistic expectation of the rewards.
How Much Can You Afford?
However, sacrificing a huge part of your income just to pay the mortgage can very quickly make home ownership a …burden rather than a point of pride. It’s better to buy a modest home now and look at purchasing your “dream home” in a few years.
What is Your Debt-to-Income Ratio?
What 32% of your income will buy depends on where you want to live. In rural or downtrodden areas for example, it can …buy a very comfortable residence and ample acreage. In highly sought-after urban areas however, it may not even buy a 400 square foot bachelor suite.
What Do You Want?
…Would obeying rules about when you can have your garbage cans out bother you, or do you want to live in a neighborhood where everything is ‘just so’? The answers to these questions can help you narrow down the search for the right type of property for you.
Can We Help?
1. You need a good agent who will work hard for you.
Our real estate team is dedicated to helping you find the right home, at the best price. We want you to find the home that will make you happy and successful in real estate ownership.
When you hire us to help with our Fargo First Time Home Buyers program, we want to know what you want and how much you can afford. Then we’ll find a way to merge these two priorities and find a residence that you’ll enjoy owning.
2. Keep your objectives in mind when visiting a home.
Sometimes the idea of owning a home can overwhelm your practical sense, so keep your feelings in check. Keep a list handy of the features that you need and want in a home, and judge each home by the list instead of by details that could distract you from your goal. When you’re alone with your agent, you can go over the pros and cons of each home. We can help you stay on track while still keeping our eyes out for a great property.
3. Engage the services of a good real estate lawyer.
A real estate lawyer can be a wise investment. Take the time to go through the interview process, to ensure that you get someone you can work with. The legalities of transferring land ownership can be dodgy, and a lawyer can be your best defense against future legal troubles. A good lawyer can charge several hundred to over a thousand dollars for their services, but the thousands of dollars saved in legal fees, later on, makes this a good expense.
4. Make the offer.
This can be a maze of “buyer”, “seller”, “chattels”, “deposit”, and “completion”. Through our Fargo First Time Home Buyers Program, we’ll be happy to prepare the paperwork and go through it with you before submitting it. Remember, the seller may reject or counter your offer, so even at this late date, avoid setting your heart on the home you hope to own. You may need to make an electronic funds transfer to the seller’s broker for earnest money—to prove the seriousness of your offer.
5. Get all inspections done.
A home inspector will check for signs of harmful materials like asbestos, lead paint and mold. They’ll also check for evidence of pests, faulty wiring and leaks. This is a crucial part of the home purchase. Notgetting an inspection done means that you could be stuck in a home with a bad case of black mold and no recourse other than to pay for its removal. Inspections will cost a few hundred dollars, but again, this is more than worth it in the end. There are several inspectors in the area that we’d be happy to recommend.
6. Do a final walkthrough before closing the deal.
We’d be happy to do this with you to make sure that everything agreed upon is completed prior to the final signing. From the first interview that determines your requirements to the moment that you receive the keys, we can help you with the complicated process of buying a home. Don’t hesitate to contact us to find out more about how we can make the home buying and first time home buyers loan process easier for your purchase in Fargo!