FHA and First-time Home Buyer Tax Credit
Many people dream of owning a home. The government is doing its best to fulfill this dream through tax credits and affordable loan schemes. Some of them are in the form of Home improvement tax benefits.
One of the most popular plans for tax credits first-time home buyers is the Mortgage points deduction loan plan. Here we look at the other schemes that help the first-time home buyer in getting a house.
Home Mortgage Interest Deduction and Tax Credits
One of the most important first time home buyers tax credit 2017 is the home mortgage interest deduction tax credit. This is one of the biggest home tax credits and helps you pay the interest on loans amounting to $1 million for married people and $500,000 if you file the return separately. Learn more about first time home buyer loan options here.
The new homeowners can really feel the benefit of this federal first-time home buyer tax credit because of one thing. In the first years of the term of the mortgage, the interest charges stay steep typically. That is the way it works, explain the bigwigs in the financial sector. The first payment in loan amortization will have the highest interest to principal ratio.
First, be sure of what is first-time home buyer tax credit and work it in this way. Your loan provider will send the Form 1098 to you that shows how much of interest you paid the previous year. You must add it as an item on your tax return Schedule A. This allows you to claim the home mortgage interest deduction as tax credits for first-time home buyers.
Add up all the deductible expenses you have during the year. This will include home ownership among other things. You will get the mortgage interest deduction if your itemized deductions are greater than your standard deductions. Click here to read about first time home buyer programs both nationally and locally.
You must note that you will not get any first-time home buyers tax credit on payments above the $1,000,000 limit. Also, the standard deduction for married couples was $12,400 (for the year 2014) and for people filing separate returns, it was $6,200. For the head of the family, the standard deduction stayed at $9,100. Lastly, for people in the higher incomes group, the total tax savings may become cut if they have phased out their allowable itemized deductions.
Mortgage Interest Credit
The mortgage interest credit provided by the federal government gives the homeowners a chance to claim first-time home buyer tax credits. They can claim this tax credit for first-time home buyers for the mortgage interest they paid on the home loan. However, this differs from the mortgage interest deduction that we saw earlier in one way.
The mortgage interest deduction decreased the taxable income amount. The mortgage interest credit, however, decreases your tax bill directly. In this way, it cuts what you must pay.
You have many advantages from such a program. How much tax credits for first-time home buyers take back in a year? A buyer can easily get 20% -30% of the interest paid for the house every year. The amount they get will depend on the purchase price of the home.
For instance, when you prepare the tax return you see that you owe the IRS $1,000. You then prepare the IRS Form 8396 (this is for the mortgage interest credit) and find that you can claim $1,000 in tax credit. In such a situation, you can claim the first-time home buyer tax credit and not owe the IRS anything. If you are a first time home buyer with bad credit, don’t worry, we’ve got you covered.
You must note one point here that the credit is not refundable. So, if the homeowner has a credit more than the tax he owes, he will not receive any check for the excess amount.
The homeowner can claim this IRS first-time home buyer tax credits only if he or she has possession of the Mortgage Credit Certificate. The state or local government issues this certificate. They issue this typically at the time when the mortgage originates. Using this certificate, the homeowner can see how much interest he or she can claim as credit.
If, however, the homeowner had claimed mortgage interest deduction to pay your tax, you must cut your credit by that amount. You cannot claim the credit twice. If you are interested in learning more about first time home buyer grants, check out this article.
Interesting points about first time home buyers tax credits
- The first-time home buying credit ended in 2010 but a few first-time home buyers who purchased their homes in 2008, 2009, and 2010 still use it.
- When you talk tax deduction, you mean tax credit. Both the tax deduction and the tax credit cut the amount of money you must pay. The tax credit of $1,000 will deduct the amount you owe by the actual amount that is $1,000. But, the tax deduction of $1,000 will cut the amount only by the applicable rate of tax in your tax bracket. Say, it is 16%, then you will get a lesser sum of $160 (read the example given in the coming sections).
FHA credit score for first time home buyer
While FHA loans stay attractive, one must consider the credit score for first time home buyer. This minimum credit score first time home buyer stays fixed at 580 or more FICO score. If the home buyer has this much score, then they qualify for the loan by making a down payment of 3.5%. The first-time home buyer with poor credit less than 580 must make a down payment of 10% of the loan amount. Learn more about first time home buyer down payment assistance here.
So, you see that first-time home buyer low credit score need not be disqualified. When one has a poor credit first time home buyer must try to improve the credit score first. Or, they must check for other sources of money such as getting a gift of money from their relatives and friends.
Attractiveness of the FHA loan for home buyers
Most of the traditional mortgage loans do not give as much protections and benefits to the borrowers as does the FHA loan. Since the agency insures the FHA loan, lenders stay lenient. Other than that, you have other advantages as listed below.
- Lower fees: One must pay various fees such as the mortgage insurance, closing costs, and others. This is the other big worry after that of paying the interest. With the FHA loan, these costs stay low.
- Qualification is easy: If the credit history is questionable for an applicant, then they stay rejected. This is also the case if the first-time home buyer credit score is low. However, FHA allows most of the applicants through even when they have a doubtable credit history and low credit scores. This benefits the first-time home buyer with no credit.
- Apply even after bankruptcy and foreclosure: People who went through a foreclosure or applied for bankruptcy can apply and get an FHA loan. They must only meet the other requirements such as solid payment history, re-establish good credit, and so on.
- Modest rates of interest: You do not have to worry too much about not being able to pay the mortgage interest rates. The lower interest rates that FHA offer is helpful to homeowners for making the payments to the housing loan.
- Have no credit: If you need to qualify for the FHA loan, the poor tax credit first-time home buyer must show two lines of credit. If your credit line is not good, then you can try a substitute form to qualify for the home loans for poor credit first-time buyer.
Maryland first time home buyer tax credit
To get the Maryland first time home buyer tax credit the home buyer must buy a house in Maryland. In addition, they must satisfy the following conditions:
- You should not have owned a home in the past three years. If you are buying in a TARGET AREA, exceptions are there.
- Your income and purchase price should stay within the limits laid down for the Maryland Mortgage Program.
- You must buy the home as your primary residence.
The homeowner receives a Home Credit of 25% of the mortgage interest payment for that year. This is the tax credit he or she will get. However, this first-time home buyer tax credit repayment cannot exceed $2,000 for one year. If we suppose that the mortgage interest paid over the year is $7,200. The Home Credit that the homeowner receives to pay his or her loan is $1,800. This is lesser than $2,000.
Let us say that the homeowner has a total income of $65,000 and the Mortgage Interest Deduction is at $6,500. We cut the HomeCredit from this and so the Mortgage Interest deduction becomes $4,700 (by reducing $1,800 from $6,500). Now, his or her taxable income becomes $65,000 minus the Mortgage Interest Deduction which is $60,300.
They calculate the Federal Tax Liability at 15% of the taxable income. This becomes $9,045. Now, we minus the Maryland HomeCredit. We get $7,245 as net tax owed. We need to subtract the Home Credit amount when we show the tax. Without the Maryland Interest Deduction, the taxable income will be $58,500. The Federal tax liability is 15% of this equal to $8,775. So, the net saving is $8,775 minus $7,245 equal to $1,530. So, what is the first-time home buyer tax credit? The $1,530 is the Net tax saving due to the Maryland HomeCredit. You will see that it is not $1,800 that is the benefit offered as 25% of the mortgage amount.
how to claim first time home buyer tax credit in Maryland
So, how to claim first time home buyer tax credit, the homeowner should pay a Home Credit Fee of $1,100. If the lender is charging a fee, it will be up to $700. This Fee amount stays cut when the home buyer is applying for both the Maryland Home Credit and MMP Loan. In this case, the Home Credit Fee is $450 and the Lender Fee if applicable will be up to $350.
Interesting facts about Maryland
- The 30-year fixed Maryland Mortgage rate is 4.22%.
- The median value of a home in Maryland is $269,100.
- The most affordable cities to live in Maryland are Frederick and Greenbelt.
- If you are undergoing foreclosure and have listed your property for sale, you should send a copy of this listing to the loan servicers, which is the bank where you have a CDA mortgage.
- If you take a fixed rate mortgage, you will know the exact amount you must pay every month for the entirety of the loan term.
- Under FHA mortgage, you can take a 30-year or a 15-year fixed rate loan.
- You can opt for customized mortgage programs with no PMI.
Pennsylvania first time home buyer tax credit
The IRS first time home buyer tax credit of $8,000 is over. It is no longer available. The PA first time home buyer tax credit program, the Mortgage Credit Certificate is available for eligible borrowers. For those who wonder is there a tax credit for first time home buyers the MCC is a home ownership tax credit program.
Benefits of choosing the PHFA loan
You get home purchase and refinance loans through the Pennsylvania Housing Finance Agency (PHFA) if you qualify as a borrower. The first-time home buyer gets many benefits when he chooses the PHFA loan. For one, the interest rates are competitive. You can use it with other loan types such as the VA, FHA, or RD loan types. The loan stays fixed rate 30-year loan.
You have special programs for people with disabilities. The home buyer needs to pay the interest to PFHA for as long as the loan shall last. You can avail of the closing cost and down payment help. As a home buyer, you need to pay fewer fees. If you qualify for the Mortgage Tax Credit Certificate, then you save up to $2,000 each year. If you have a participating employer, then you can avail of Employer Assisted Hosting.
Steps to begin the PHFA Home loan
The first step is to get in touch with a participating lender and a home buyer counselor. You must choose a PHFA approved counselor. The home buyer must approach one of the PHFA approved counseling agencies. Here they get free home buyer counseling and education. The borrowers with a FICO score less than 680 must complete the course by attending in person.
Before signing the agreement, the home buyer must consult a counselor. He will decide whether the home buyer is ready to get the loan or not. He will also tell you how big a home you can afford and the loan amount you need. If he decides that you are not ready for the home loan, he will help the home buyer plan for the same.
Once you do this, the home buyer must get in touch with the participating lenders. You should note that the PHFA does not give the loan. It merely approves the loans that the participating lenders give to the home buyer. The home buyer can use the network of lenders and brokers working under the PHFA and use them to close the loans. Once this takes place, the PHFA buys this loan, known now as the Settlement, and the home buyer needs only to make the mortgage payment to the PHFA until he pays the loan fully.
Interesting facts about Pennsylvania
- The 30-year mortgage rate in Pennsylvania is 4.16% and the 15-year fixed mortgage rate is 3.27%.
- Home buyers in Pennsylvania can find many HUD-approved Housing Counseling Agencies to help them with the process of home buying.
- In Pennsylvania, the median home value is $157,600.
- These counseling agencies provide services such as Home buyer Education, Home buyer counseling, Credit Repair Counseling, and help for Individual Development Accounts.
- The houses vacant in Pennsylvania is 11.13%.
- A few cities and counties in Pennsylvania offer the tax credit for first time home buyer Mortgage Credit Certificate (MCC). You can check with the Home buyer Education and Counseling to know if this is available in your area.
You can get help for analyzing and repairing the credit report from the Housing counselors. They will help the home buyer budget for mortgage payments. One could also ask them do first time home buyers get a tax credit and how to apply for special programs offered to first time home buyers.