Can the Tax Credit Be Used as a Down Payment?

Reader Question: Can you get the tax credit and use it for your down payment?

No, not at this time. It doesn't come in the form of a cash payment, or any kind of payment for that matter. It comes in the form of a credit that you can write off when you file your taxes.

In fact, it's more like a 15-year no-interest loan than a tax credit, because you have to pay it back. Starting the second year after your closing date, you must begin to pay back the tax credit in regular installments over a 15-year period.

Here's the IRS page that explains the tax side of this program, and here's a previous blog post I did that explains more about how the first-time home buyer tax credit works.

It's possible that the requirements and qualification criteria for this program could change in the coming months. I know that the National Association of Realtors is lobbying the government to extend the program beyond its current expiration date of July 2009. The NAR is also trying to get the payback requirement removed. Wouldn't that be nice? Time will tell.

According to a Wall Street Journal article on this subject: "To entice more first-time buyers, the industry group [NAR] is lobbying lawmakers to tweak the tax credit, removing the repayment aspect. They also want all home buyers to be eligible -- not only those who haven't been homeowners for the past few years."

Hope that helps.