The federal tax credit for first-time buyers is not really new, but how you can use it is.

The first-time buyers’ tax credit now has two options:

    * First-time home buyers can apply the tax credit to their tax filing in 2010 (for the year 2009).
    * First-time home buyers can apply the tax credit to their down payment and/or closing costs when using FHA financing.

The first-time buyers’ tax credit as a down payment:

    * Can only be used with FHA financing.
    * Can only be used to add to the buyer’s FHA required down payment.

The first-time buyers’ tax credit pays closing costs:

    * The tax credit can be applied to certain loan costs when obtaining FHA financing.
    * The tax credit can be used to buy down the interest rate of the loan.
    * The tax credit can be applied to the upfront FHA mortgage insurance premium (MIP) fee (1.75% of the sales price).

The first-time buyers’ tax credit advantages with FHA financing:

    * A bigger down payment means a lower mortgage payment.
    * Buying down the interest rate means a lower down payment.
    * Buying down the interest rate results in saving tens of thousands of dollars in interest over 30 years.
    * Using the tax credit reduces the amount of money you will need to close escrow.
    * Use the portion of the tax credit you need for FHA financing, claim the remainder when filing your 2009 tax returns.

The first-time buyers’ tax credit when filing 2009 tax returns:

    * The tax credit is more cost effective than a tax deduction.
    * The tax credit is a dollar-for-dollar reduction in your tax liability (what you owe).
    * If you owe less than the amount of your tax credit, you receive the remaining balance in the form of a refund.

The first-time buyers’ tax credit means money in your pocket.

    * Using the tax credit with FHA financing when applied to your closing costs or MIP means you have less coming out of your savings.
    * Using the tax credit with FHA financing when applied to the down payment means a lower house payment giving you more money monthly.
    * Using the tax credit with FHA financing when applied to buying down your interest rate means more monthly money and long term savings.
    * Using the tax credit when applied to your 2009 tax return filing means you owe less to the IRS.
    * Using the tax credit when applied to your 2009 tax return could result in a refund check, which can go directly into your pocket.

The federal tax credit offers a great advantage to first-time buyers in addition to the great Southern Maryland real estate market conditions, which are in the buyers’ favor at this time.

The current low-interest rates offer everyone, especially the first-time home buyer, a great advantage in buying now. Interest rates are hovering at the 5% level, but have going up slightly in the past few weeks due to the increased activity in the housing market.

The housing market is picking up.  So first-time buyers should not let the advantages of buying a home in Calvert County, Charles County or St. Mary’s County pass them buy.  As home prices stabilize, home values increase.  It is likely that first-time buyers will never again experience the advantages of a tax credit, low-interest rates and a real estate market which favors buyers all at the same time again.

Bonnie Augostino, your Southern Maryland real estate professional