Federal Housing Tax Credit

First time home buyers, or prospective buyers who have not owned a home in the last three years, are encouraged to take advantage of the Federal Housing Tax Credit.  This tax credit is $3750 for individuals earning up to $90k a year and $7500 for married couples having a combined income of no more than $150k.  The tax credit should be claimed when you file your tax return.

The tax credit does have to be repaid, but payments are interest free.  Payments begin two years after the tax credit is taken.  For individuals, the payments are $250 per year, for couples, the payment is $500 per year.  You are allowed 15 years to repay the credit, unless you sell your home.  If you sell your home at a profit within the 15 year period, then the balance of the credit is payable immediately.  If the home is sold with no profit or at a loss, the tax credit does not need to be repaid.     

Used wisely, this tax credit could actually help you come up with the funds needed to purchase a home; If you are certain that you qualify for the credit and will be purchasing a home before the deadline, you are permitted to reduce your income tax withholding. By reducing your tax withholding (up to the amount of the credit) you will be able to accumulate cash since you will have extra take home pay. Once saved, this money can then be applied to your down payment. 

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