Qualified first-time and repeat home buyers can still take advantage of the federal home-buyer tax credits. The credits are back, after a short hiatus, and prospective  home buyers stand to save thousands of dollars by taking advantage of them.  They should be used wisely,however. Here are a few things to keep in mind:

The deadline is approaching

The deadline for the federal home-buyer tax credits is April 30, 2010. That means that if you want to use the credit, you have to have your home under contract, or in escrow, by that date. In addition, the transaction must close within 60 days. Although 60 days may sound like a long time, consider that the average home takes just under that to close. Also, if you are a first-time buyer, you should start looking soon.

The amount of the credit varies

People need to understand that the amount of the tax credit is not set in stone. In fact, it’s actually 10% of the sale price of the home. Remember though that there is a maximum on the credit of $8,000 for qualified first-time buyers and $6,500 for qualified repeat buyers. For example, let’s say a first-time buyer finds a home for $75,000. Their tax credit would be $7,500. On the other hand, if repeat buyers find their dream home for $110,000, the maximum tax credit would be  $6,500.

Consult the experts

It’s never a good idea to try to sort through complex tax laws yourself, even if you do some research. Make sure you find the right people to guide you through the purchase and help you out. You want to have a mortgage lender who helps you find the right loan product, a realtor who can help you find homes with the right requirements and a tax preparer who knows the details of qualifying for the credit. Working together, they can create a sure-fire plan of action so you can take the tax credit and have all the necessary paperwork to prove your eligibility.

Be wise about lenders

Remember the lending boom? Part of the problem with it was that companies were lending via unscrupulous lending policies. They suggested people take out much larger loans than they reasonably could afford. They suggested people withhold certain information. They even doctored the numbers on loan applications. Don’t be a victim. If your lender suggests any of these practices, run. As Patti Ketcham, owner of Ketcham Realty Group, said in a Bankrate.com article, “It is critical that buyers educate themselves and that they not fall for the slick smoke and mirrors. Anytime you have found money, it brings out all the rats.”

Arm yourself with knowledge

In the end, it’s up to buyers to protect themselves from fraud or other unfair dealings. Take advantage of the federal homebuyers’ tax credit, but act wisely. Surround yourself with the right professionals who can guide you through the process and then enjoy the benefits. The credits are a great way to reduce the cost of moving into the home of your dreams.

Most people are now well aware of the First Time Home Buyer Tax Credit issued in 2009. The National Association of Realtors (NAR) statistics indicated a consistent rise in pending home sales during the period in which first time home buyers could reap tax credits. In fact, NAR’s statistics showed pending home sales were up 31.8% during October, 2009 when compared with October, 2008.

Washington State Representative (D), Jim McDermott said, “The homebuyer’s credit has helped pave the way for stabilization in the housing market…. Its extension will continue to make homeownership more affordable and bring confidence to a housing market and economy that remain fragile.” There were, however, no tax credits included in this legislation to help those millions of people who currently owned a home or had owned a home within the past five years. There was much grumbling on the part of homeowners who failed to qualify for tax credits under this program.

2010 Extended Home Buyers Tax Credit

On November 8, 2009, President Obama signed into law an extended version of the tax credit legislation as part of a larger economic stimulus package. The tax credit for qualifying home owners who chose to upgrade to a new or more expensive existing residence between November 7, 2009 and April 30, 2010 would enjoy up to $6,500 in tax credit. The first time home buyer benefits remained with a cap of $8,000.

Charles McMillan, President of the National Association of Realtors, states, “The substantial rise in home sales we’ve seen over the past few months proves that the tax credit is working and is being used by buyers who were waiting for the right opportunity to get into the market. This important incentive is helping to stabilize the housing market, stimulate the economy and create new jobs in communities all across our great nation. Extending and expanding the home buyer tax credit will enable even more families to take advantage of current low interest rates and affordable prices to invest in their future through homeownership.”

Buyer Qualification for the Tax Credit Extension

Each qualifying home buyer who has not owned their own residence, nor has their spouse owned a residence, during the three years prior to buying a qualifying home during the period beginning November 7, 2009 and ending April 30, 2010 will receive a tax credit of $8,000. Any qualifying homeowner who buys a home during the same tax credit period AND who has owned the home being sold or vacated as their primary residence for five consecutive years of the past eight years will qualify for up to $6,500 tax credit. The qualifying home must be in the binding contract phase of purchase no later than April 30, 2010 in order to qualify for the tax benefit. A copy of the HUD-1 Settlement Statement must be provided after closure of the sale; closing must occur no later than June 30, 2010. No person under the age of 18 can qualify for the tax credit benefit.

Income Qualifications

Homebuyers who are not married must have income of less than $125,000 to qualify for the full tax credit. Married homebuyers must have combined incomes not exceeding $225,000 to fully qualify. Single homebuyers earning between $125,000 and $145,000, or married couples filing joint income tax returns indicating income of between $225,000 and $245,000, will qualify for a portion of the tax credit. The tax credit amount is calculated on a sliding scale so that the more money is earned over the maximum, the less tax credit is available.

Tax Credits Versus Tax Deductions

The greatest part of this tax credit program is that it offers a CREDIT as opposed to a DEDUCTION. A tax deduction means that your taxable income is reduced by a specific amount. However, a tax credit means that after your taxes owed or refund due are calculated, the tax credit is subtracted from income tax owed or added to tax refund amount due. This maximizes the benefits to those who take advantage of the 2010 Extended Home Buyers Tax Credit Program.

Installment loans are aiding first-time home buyers make the purchase of their dreams. When moving to Phoenix, Arizona, Kostas Kalaitzidis longed for a home. Due to his low-income and the high-cost market, he was unable to buy. Just one year later, he was able to buy a formerly-priced $220,000 house for just $82,000. “I’m very glad I waited,” he says, “people like me are the ones buying now.”

Declining home values

It is estimated that 53% of all home sales are being made by people like Kalaitzidis, according to the National Association of Realtors. The group also says, “While America’s declining home values have wrought havoc on home sellers, owners and lenders, first-time buyers can celebrate the housing market bust, and may even help fix it.” They expect first-time buyers to comprise the bulk of buyers throughout the rest of 2009.

Although salary is a factor, most first-time buyers are making the move as a result of the huge decrease in home prices. For example, Kalaitzidis’ home boasts 2,200 square feet, four bedrooms and 2 ½ baths. At $82,000, it’s a relative steal in the real estate market. In addition, tax credits are plentiful for first-time buyers.

According to James Saccaccio, CEO of RealtyTrac, “The metro areas with the highest level of foreclosure activity paint a picture of concentrated problems in a relatively small number of hard-hit areas. Sales activity appears to be increasing in some of these markets as home prices have fallen to levels that are attractive to first-time homebuyers.”

New buyers are plentiful

Kalaitzidis is not alone. Many first time buyers are seeing homeownership as a potential accomplishment they could not have attained without the struggling market. Albert Ko of Orange County, California first moved to the area in 2007 when the average price of a moderate home was $800,000. He just was approved for $400,000 and most homes in the area have dropped to just about that level. “Two years ago, this would have been out of the question,” Ko confirms.

Though current homeowners are suffering the lost equity, new potential buyers are seeing affordable housing as a huge benefit. With the dream of owning a home as a viable option, they are looking to installment loans, family borrowing and extreme budgeting as methods of reaching their goals. For the first time, many potential borrowers are taking advantage of the recession and downfall of the housing market.

Burns Consulting Group study

According to Burns’ Consulting Group the average home costs 25% of the owner’s pretax income to sustain, down from 44% just three years ago. That means that a household with a $60,000 income is now spending about $15,000 a year for the fixed-rate mortgage, down from $26,400. That’s a substantial savings for a family.

Finally a homeowner

There is a light at the end of the recession. Many people who were formerly unable to even consider purchasing their own home are now enjoying the affordability brought about by the recession. Home values are down and down payments needed to purchase are much smaller. Some potential homeowners are working with lenders for installment loans to help fund their purchases as they move into the most-coveted title of “homeowner.”