First-Time Home Buyer Programs
There are programs available to help first-time home buyers purchase a home. One is the Federal First-Time Buyer Tax Credit and the other one, available here in New Mexico, is the Mortgage Finance Authority’s (MFA) Tax Credit Loan Program. Let’s begin with the Federal tax credit….
Do I Qualify For The Tax Credit?
You qualify if you are a first-time home buyer and you purchase a home between January 1, 2009 and December 1, 2009 (act now!). To qualify as a “first-time home buyer” you cannot have owned a home during the three years prior to the purchase.
Please note that this is about “qualifying” to get the tax credit, which is different from “qualifying” to buy a home. To qualify to buy a home, a lender will consider your income, debts, credit score and credit history and then tell you whether or not they will loan you money to buy a home and, if so, how much they will loan you.
What Type of Home Can I Buy?
You can buy a single-family home, a condo, a townhome or a co-op. The home you buy must be the home you will actually live in (“primary residence”).
How Much Will My Tax Credit Be?
The maximum allowable credit is $8,000. Each home buyer’s tax credit is determined by two factors:
- The price of the home. The credit is equal to 10% of the purchase price of the home, up to $8,000. So if you buy a home for $80,000 or more, you will receive the entire $8000 credit.
- Your income. Single buyers with incomes up to $75,000 and couples with incomes up to $150,000 may receive the entire $8000.
Can I Still Get a Credit If I Make More Than That?
Maybe. The credit decreases for buyers who earn between $75,000 and $95,000 for single buyers and between $150,000 and $170,000 for couples. The amount of the tax credit decreases as the income approaches $95,000 for singles and $170,000 for couples. Home buyers earning more than that do not qualify.
Do I Need To Pay It Back?
Probably not. You do not need to repay the tax credit if you occupy the home for three years or more. However, if you sell the home during this three-year period, you will have to pay the tax credit back when you sell it.
What If I Can’t Pay The Required 3.5% Down Payment?
New Mexico offers special help for first-time home buyers. It’s called the Mortgage Finance Authority (MFA) Tax Credit Loan Program. MFA will loan you up to 8% of the price of your home to a maximum of $6500 (you can get the entire amount if you buy a home for more than $81,250). This can be used to pay your down payment and closing costs.
How Do I Take Advantage Of This MFA Tax Credit Loan Program?
You must qualify for an MFA mortgage. For one thing, there are income limits that vary based on the size of your family. And, just like with any other loan program, the lender will need to look at your income, debts., credit history and credit score. Also, you must find a lender that offers MFA loan program—not all lenders do. But there are many that do for you to choose from. You can find all the information you need at www.housingnm.org
Do I Have To Pay Back The MFA Loan?
Yes. If you pay this loan back before June 30, 2010, you do not pay any interest on the loan. If you do not pay it back by then, it will convert to a second mortgage (another loan on your home) requiring a modest monthly payment. You can use the Federal Tax Credit to pay it off.
How Does The Federal Tax Credit Work With The New Mexico MFA Tax Credit Loan Program?
You can borrow this $6500 from MFA to pay towards your down payment and closing costs. Then, when you get the $8000 tax credit next year, you can use what is left of it to pay towards the MFA loan. (Remember that any 2009 income tax you owe will get subtracted from the $8000.)
Time For An Example….
You are a first-time home buyer who buys a single-family home for $100,000 before December 1, 2009. At this price, you qualify to receive the entire $8000 tax credit and the $6500 MFA loan. The 3.5% down payment you owe totals $3500. Let’s say that your closing costs add another $1500 to what you owe at closing. And let’s say that you decide to pay another $1500 to “buy down”, or lower, your interest rate to make your monthly payments lower. This brings the total amount of money you need to pay at closing to $6500 (convenient, eh?). You use your MFA $6500 loan to pay that $6500.
Next, after you file your 2009 taxes, you will get a check for what is left of your $8000 tax credit. (Remember that any 2009 income tax you owe will get subtracted from the $8000.) Let’s say you owed $1000 for your 2009 taxes. This leaves you with $7000. You can then use $6500 of that $7000 to pay back your MFA loan if you’d like. Whatever you do not use to pay back the $6500 loan is yours to do with as you please, but whatever amount of the $6500 MFA loan you do not pay back will be converted to a second mortgage on your home.
All loan programs are subject to change. The information provided above is considered reliable but its accuracy is not guaranteed. You are urged to consult a lender or tax advisor.
Phone: 505.363.4499