As a potential first- time home buyer, the volatility of housing market could seem intimidating. According to National Public Radio, the number of foreclosures increased 32 percent in April 2009 when compared to the same month in 2008. Despite the turmoil, however, there are many good reasons why now may be just the right time to buy your first home. In fact, industry experts suggest that today's consumers are experiencing the best buyer's market of the century.



What does that mean for a potential home buyer?

For starters, homes are more affordable today, and there is a larger inventory from which to choose. Mortgage interest rates have dropped significantly, and developers are offering major discounts for those choosing to build a new home.

In addition, there are great tax incentives. To attract potential buyers and stimulate the distressed housing market, the U.S. government implemented new tax incentives this year that could pay you up to $8,000 when you a buy a new home. Unlike the 2008 tax credit that must be repaid, this new program provides first-time home buyers with a dollar-for-dollar reduction in the taxes they owe.

Understanding the 2009 First-Time Home Buyers Tax Credit

The American Recovery and Reinvestment Act of 2009 is an economic stimulus package. One of the provisions of this new legislation expanded last year's first-time home buyer's tax credit. This year, eligible first-time home buyers will receive a fully refundable income tax credit equal to 10 percent of a new home's price, up to a maximum to $8,000.

How the tax credit works – Simply subtract the $8,000 (or amount of your credit) from the amount you owe the Internal Revenue Service (IRS). For example, if you owe $10,000 in taxes, then you would only be responsible for paying $2,000. If you owe $1,000, you would receive $7,000 from the IRS as a refund. As long as you keep the home for three years, the tax credit does not need repaid.

How to qualify – You must be a first-time home buyer buying your primary home between Jan. 1, 2009, and Dec. 1, 2009. A first-time home buyer is defined as someone who has not owned a principal residence in the three years prior to the purchase. If you are married, this previous home ownership rule will apply to you and your spouse. Vacation rental homes and rental properties are excluded from consideration. In addition, if you own a home, but buy a home with someone who qualifies as a first- time home buyer, such as son or daughter, you may be able to assign the tax credit to them.

How to use the tax credit – There are many ways to take advantage of the 2009 first-time home buyer' tax credit. According to Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, the Federal Housing Administration (FHA) is allowing first-time home buyers to use the tax credit as a down payment. This is great news for potential first-time home buyers, who may be reluctant to part with their savings and commit to a mortgage because of uncertainties in the economy. Another alternative allows potential first-time home buyers to reduce their income tax withholding. This increases their net paycheck and enables them to save for a down payment more quickly. Finally, first-time home buyers can choose to either apply the tax credit to their 2009 federal income tax, or submit an amended form to apply the credit to their 2008 taxes.

The fine print – The 2009 first-time home buyer's credit has some stipulations. For example, the income limit for single taxpayers is $75,000, or $150,000 for married couples filing a joint return. Taxpayers within $20,000 of the maximum limit can qualify for a partial credit based on a sliding scale. The tax credit reduces to zero for taxpayers with an income $20,000 or more over the limit. In addition, the 2009 tax credit only applies to new home loans that are 30-year fixed rate mortgages. Other limitations may apply. For more details, visit FederalHousingTaxCredit.com or IRS.gov.

Due to the benefits of the new 2009 tax credit, as well the favorable market conditions, the time may be just right to buy your first home. For more information about new home mortgages, and to find out if you qualify, visit nationwidebank.com.