Q: I have a poor credit and a poor credit score and history but a great rental history. Tell me, how can I take advantage of the $8,000 tax credit for first time home buyers?
A: The $8,000 first time home buyer tax credit is a program intended to provide a little extra financial assistance to help those people that otherwise might not be able to afford a home. The funds can be used to help them get over the hurdles that come up when buying a first home.
The $8,000 first time home buyer tax credit may be used by anyone who has never owned a home or has not owned property during the prior 36 months. In addition to some ownership requirements, there are income restrictions as well. If you’re single and have an adjusted gross income greater than $125,000 (or $225,000, if married), the tax credit is reduced or eliminated.
There are other restrictions to the tax credit, but for most first time home buyers, if you make less than those amounts and have not owned a home in the prior 36 months, you should qualify. If, however, you’re married, both you and your spouse must not have owned a home for the prior three years to qualify for the first-time home buyer tax credit.
But you’ll have to hurry, you have to enter into a contract for the purchase of that home prior by April 30, 2010 and close on that home by June 30, 2010.
Beyond qualifying for a home buyer tax credit, the basic rules of purchasing a home still apply to you.
If you have poor credit, you may not qualify for a loan to purchase a home. If you don’t have enough saved up to buy a home, you may not be able to put down enough cash and pay for the closing costs and other costs of purchase.
While you say you’ve had a great rental history, you may need to prove that by providing copies of checks that were cashed on time or a letter from your landlord to the bank, showing your on-time payments.
What has caused your poor credit? Late or missed payments? Too much debt relative to the maximum amount of credit? Judgments entered against you? These pieces of negative information could prevent you from qualifying for a loan.
While the Federal Housing Administration (FHA) says it will grant a loan to a home buyer with a credit score of 580, if you have 10 percent to put down in cash, in reality there are virtually no lenders that are willing to shoulder the risk. Most lenders won’t approve you for a loan if your credit score is below 640 or even 680.
You should go over your credit report with a fine tooth comb and determine what you have done wrong in the past that can be corrected. You can get a free copy of your credit history from each of the three major credit bureaus (Equifax, Experian, and Transunion) at www.AnnualCreditReport.com. At that site, you will be offered your credit score for about $8. You don’t need to pay the fee to get your credit histories but you might want to know your credit score.
Once you review your credit history from one or all of the credit bureaus, you will be able to tell where you have gone wrong in the past. The credit reports will indicate which accounts have been paid late; which accounts were closed with balances on them; what bills you never paid and where you have high balances left to be paid to creditors.
If you have too much debt, this might not be the right time for you to take on more debt to buy a home. Renting may be better for you than buying a home – even with the first time home buyer credit.
The $8,000 first time home buyer tax credit may be a great one time hit, but you could quickly wind up in financial trouble if the property isn’t affordable over the long run.
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