Taking the first steps in your homebuying journey and wondering what tax credits and programs may be available to you?

You're in the right place. Keep on reading for a summary of what tax credits and programs you may be eligible for...

Who is a first time homebuyer?

The U.S. Department of Housing and Urban Development (HUD) defines a first-time homebuyer as follows:

• An individual who has not owned a principal residence during the three-year period ending on the date of purchase of the property (and the spouse of such an individual)
• A single parent who has only owned a home with a former spouse while married
• A displaced homemaker who has only owned with a spouse
• An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations
• An individual who has only owned a property that was not in compliance with state, local, or model building codes—and which cannot be brought into compliance for less than the cost of constructing a permanent structure

What happened to the first time homebuyer tax credit?

The Obama administration enacted the federal first-time homebuyer tax credit in 2008, but the program ended in 2010.

In 2021, The Department of Housing and Urban Development (HUD) is the best place to go to learn about the latest loans and grants for first-time homebuyers. 

Here is a summary of the programs for which first-time homebuyers are eligible:

FHA, Fannie Mae, Freddie Mac

The Federal Housing Administration (FHA) insures loans that typically come with smaller down payments and lower credit score requirements than most conventional loans. First-time homebuyers can potentially qualify for a loan with as low as 3.5% down payment with a FICO score at above 580, or 10% down payment for a FICO from 500 to 579. Expect to have to pay for mortgage insurance if your down payment is less than 20%. Your state website may have resources for locating a lender; for instance in California - you can find that here.

Fannie Mae and Freddie Mac establish guidelines for conventional loans offered by private lenders. Generally, these types of loans can require as little as 3% down payment for FICO scores of 620 or higher.

USDA, VA, Good Neighbor Next Door, Native American

These programs are great for first-time homebuyers that also meet additional income or employment criteria. The USDA guarantees loans with 0% down payment for borrowers with FICOs above 640; these loans may only be available in more rural areas and aren’t available to households with above-average income. More information can be found here.

VA loans also can come with 0% down payment requirements, as well as having loose FICO requirements and subsidized interest rates. These loans are only available for active-duty military members, veterans, and their spouses. More information here. The Native American Direct Loan (NADL) is another VA-backed program. It provides direct home loans to eligible Native American veterans to buy, renovate, or build homes on federal trust land; there are no down payment or mortgage insurance requirements. More information here. 

Law enforcement officers, firefighters, emergency medical technicians, and teachers are eligible for the Good Neighbor Next Door Program sponsored by HUD, which offers discounts of 50% off of the property price in designated territories. More information here.

State and local program and grants

A number of states and municipalities offer down payment assistance or closing cost assistance for first-time homebuyers.  

First-time homebuyer programs by state:

• California first-time homebuyer grants and programs
• Florida first-time homebuyer grants and programs
• Illinois first-time homebuyer grants and programs
• New York first-time homebuyer grants and programs
• Pennsylvania first-time homebuyer grants and programs
• Texas first-time homebuyer grants and programs

IRA withdrawals

There is an exemption for first-time homebuyers that permits early withdrawals of up to $10,000 from either a traditional IRA or Roth IRA without paying the standard 10% penalty. A couple can combine their resources to withdraw up to $20,000. The standard definition of a first-time homebuyer applies (i.e., you may have owned a home more than 3 years ago), but the $10,000 per individual limit is a lifetime limit.  

Other tax benefits

As a first-time homebuyer, you will also benefit from the key tax benefits enjoyed broadly by homeowners. These include the mortgage interest deduction (for mortgage sizes up to $750,000), deductions for mortgage fees and points, ability to deduct your property taxes, and tax credits for energy-efficient systems (i.e., solar panels, geothermal heat systems, and wind turbines). 

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