New Twist on Using the First Time Buyer Tax Credit to Raise Down Payment Funds
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I love this idea about how to use the Obama Housing plan with its new first time buyer tax credit to help you save up money for a down payment on a home. This idea comes directly from www.federalhousingtaxcredit.com in their Q &A section about the first time buyer tax credit. So, I don’t deserve credit for it, but I think it’s a great strategy and I wanted to share it. It walks through the basic idea of adjusting down the amount of taxes taken from your pay check today in order to save up the money for you to buy a home tomorrow. Keep in mind, this idea only works if you actually do buy before December 1st this year.
Here’s the Question and Answer
Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?
Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.
Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.
I often counsel buyers about how they can adjust their taxes after buying a home to improve their monthly cash flow because of the income tax deductions they will receive from having a mortgage. But, admittedly I had not though of this idea before.
This plan should allow buyers to save $500 to 1,000 a month (depending on their income levels) to build up enough money to cover the 3.5% down payment on a FHA loan, which is the smallest down payment available to most buyers.
March 26th, 2009 at 9:41 pm
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