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Buying your first home can be expensive — the down payment and closing costs alone can run you tens of thousands of dollars.
The good news? More than 2,500 grant and loan programs are available nationwide that can help make your home purchase more affordable, according to a report by the Urban Institute. Even better, you may qualify even if you’ve owned a home in the past.
While the Obama-era first-time homebuyer tax credit ended in 2010, take a look at how state-level tax credits and other programs can help first-time homebuyers.
Who qualifies as a first-time homebuyer?
Aside from people who have never owned a home, the Federal Housing Administration says first-time homebuyers can also include:
- Anyone who hasn’t owned a principal residence in the last three years
- A single parent or displaced homemaker who has only shared ownership with a spouse while married
- Anyone who has owned a home that’s not permanently connected to a foundation
- Anyone who’s only owned property that didn’t conform to state, local, or model building codes (and that can’t be fixed to comply with those codes for less than the cost of a new residence)
For example, you may qualify as a first-time homebuyer if you’ve only owned an investment property in the past, or your principal residence is a mobile home.
If you’re considering a home purchase, be sure to shop around for the best rates. Credible makes this easy — you can compare multiple lenders and see your prequalified mortgage rates in as little as three minutes.
How can I find first-time homebuyer tax credits for my state?
Although homebuyers can no longer claim the federal first-time homebuyer credit, you’ll likely find similar programs locally. Some states also offer zero-interest loans and grant money to put toward the costs of buying a home, like a down payment.
Many first-time homebuyer programs offer tax benefits in the form of mortgage credit certificates (MCC), which convert some of the mortgage interest you pay into a federal tax credit. The tax credit is usually capped at $2,000, and it’s nonrefundable.
Tip: While these programs can help you make a down payment and pay for closing costs, be sure to read the guidelines carefully. Some of these programs have restrictions, such as minimum credit scores, income, and purchase price limits. You also might need to take certain educational courses to qualify.
What other tax benefits can I take advantage of?
First-time homebuyers can take advantage of the tax benefits that apply to all homeowners. Some of these benefits are deductions, which reduce your taxable income, while others are credits, which reduce the actual tax you owe dollar for dollar.
Mortgage insurance deduction
While you can’t deduct homeowners insurance premiums, you may be able to deduct a different kind of insurance — mortgage insurance premiums — if you itemize on Schedule A.
The tax break applies to any mortgage insurance you paid, whether it was for a conventional loan or one backed by a government agency, such as an FHA loan. You can also deduct the funding fee from a mortgage backed by the Department of Veterans Affairs.
Good to know: Expect to receive a Form 1098 in the mail from your mortgage lender if you paid more than $600 in interest in the tax year; this form includes the mortgage interest you paid during the year along with your mortgage insurance.
Mortgage interest deduction
The mortgage interest deduction allows you to deduct any mortgage interest on your federal income tax return. To claim the tax break, you’ll need to itemize your deductions on Schedule A.
Married joint filers can claim interest paid on a mortgage up to $1 million as long as the loan was taken out before Dec. 16, 2017. If you bought your home after that date, you may deduct interest on mortgage debt up to the first $750,000 ($375,000 if you’re single or filing separately).
Tip: Mortgage points may be deductible as well. As long as you itemize the deductions, you can deduct mortgage points for either the year you purchase the home or deduct them incrementally across your loan term.
If you’re looking to buy a home, you can visit Credible to compare mortgage rates from various lenders, and it won’t affect your credit.
Property tax deductions
The state and local tax deduction, or SALT, allows taxpayers to deduct money paid to state and local governments for income or property taxes.
You may deduct up to $10,000 of state and local taxes from your federal taxable income, as long as you itemize on Schedule A.
Renewable energy tax credits
If you’ve upgraded your home with energy-efficient improvements, you may be able to net tax savings worth several thousand dollars.
The residential energy efficient property credit is available to homeowners who install:
- Solar panels and water heaters
- Geothermal heat pumps
- Small wind turbines
- Fuel cells
- Energy-efficient heating and air conditioning systems
Tip: The tax credit is worth up to 30% of what you paid to install these systems, depending on when the system was placed in service. But the credit decreases each year until the end of 2021—so if you’re looking to take advantage of this tax break, timing is important.
Compare multiple lenders
If you’re a first-time homebuyer looking to secure a mortgage, be sure to shop around and compare rates with multiple lenders. Credible lets you see your prequalified mortgage rates in only three minutes.
About the author: Kim Porter is an expert in credit, mortgages, student loans, and debt management. She has been featured in U.S. News & World Report, Reviewed.com, Bankrate, Credit Karma, and more.