If you are a first-time homebuyer (or someone who has not owned a home for at least the last three years), this could be a great time to look for a home. Not only are there some terrific bargains out there compared to just a few years ago, but interest rates continue at an all-time low and many sellers are offering great incentives to assure buyers make an offer on their house, rather than the one for sale down the street.

In addition to all of that, however, as a first-time buyer you may be eligible for help from the federal government. If you and your agent negotiate a successful contract for the sale of a home between now and April 30, 2010, you could get an $8,000 credit on this year’s taxes. That means a lot of extra dollars that you can use to do home repairs, buy furniture, or even, in some cases, help with your closing costs. Think of it as a very generous housewarming present from Uncle Sam!

To get in on this deal, however, it is important to call your agent and your lender today. That way you will have plenty of time to start the loan approval process, and find the perfect house well before the April 30 deadline.

Market Conditions Favor First-Timers
A few years ago when the market was hot, it was difficult to find a house for less than $300,000, especially for buyers who wanted to live close in. Further, there were lots of other buyers competing for the small number of available homes. In some instances, this competition led to bidding wars that pushed prices even higher, making it increasingly difficult for first-time buyers.

Today’s market looks very different. There are many more homes on the market than there are buyers, and prices have fallen considerably since the bidding war days. In fact, the Charlottesville Area Association of REALTORS® (CAAR) reported that at the end of 2009, the median home price for our area had fallen by $20,823 (-7.8%) compared to the end of 2008, which put it below 2004’s year-end median price. This means that not only will buyers have more homes to choose from, but sellers will often be more negotiable when working with them. For example, REALTOR® Kevin Holt of ERA Bill May Realty Co. described instances in which sellers have offered to assist with his buyers’ closing costs.

First-Time Buyer Tax Credit
Congress passed the original First Time Buyers Tax Credit program in early 2009 in an effort to boost housing sales and stabilize market prices. Fortunately for first-timers who missed the deadline on this first program, Congress passed an extension in November, giving them until April 30, 2010 to get a contract signed. Qualified buyers can claim their $8,000 tax credit so long as their closing takes place prior to July 1, 2010.

While most first-timers will be able to take advantage of this special credit, the legislation does specify limits on both their income and the price of their new home. Qualifying buyers include singles who earn up to $125,000 of adjusted gross income, and married couples who earn up to $225,000. There is a gradual phasing out of benefits for buyers who make up to $20,000 more than these upper limits. There are also limits on the price of the home, which must be less than $800,000 at the upper end. At the lower end, the tax credit cannot exceed 10% of the purchase price. Of course, credits only apply to homes that are to be used as a personal residence.

A nice feature of the legislation is that it offers flexibility on when you claim the credit. Even if you purchase your home in 2010, you can choose a date of December 31, 2009 as your purchase date. This allows you to claim the credit when you file your 2009 taxes so that the money can go in your bank account immediately instead of when you file your 2010 return.

First-Timers Buy in Record Numbers
Many agents and lenders agree that the dramatic drop in home prices in recent years, plus the first-time buyer’s tax credit, has played a big role in bringing first-timers into the market. Sasha Cannon Farmer, a REALTOR® with Montague Miller & Co., reported that her buyers are working hard to get under contract before the April deadline. She feels that the tax credit helps make home ownership more attractive than renting. Sabrina Thompson of Real Estate III agrees. She described the combination of affordability and the tax credit as a wonderful opportunity for first-time buyers.

Another REALTOR®, John Updike of Roy Wheeler Realty Co., described one of his first-timers who recently bought a townhome in Crozet. He had been a renter for years, but told Updike it was the $8,000 credit that finally gave him the confidence to buy. In his case, the buyer used the extra money to buy furniture and quipped that it saved him from sitting on milk crates.

Recent market activity also supports the significance of price reductions and the tax credit on the market activity of first-time buyers. According to the CAAR 2009 Year-End Market Report, in 2009 67.5% of sales were in the under $300,000 category, representing a 10% increase in starter home sales compared to 2008.

To get another perspective on this issue, I was fortunate to speak directly to a first-time buyer, a 26-year-old communications specialist, and client of lender Lee McAllister of Fulton Mortgage. This buyer almost bought a home in 2006, but decided at the last minute that the time was not right and she elected to keep renting. When I asked what motivated her to get into the market in 2009, she told me she was amazed at how much more home her money could buy compared to three years ago. She was also impressed with the $8,000 tax credit, which offered lots of additional incentive to go ahead and buy this time around. She chose a detached home in a new subdivision where she was able to afford some upgrades as well as enjoy the process of selecting her personal colors, floor coverings, and finishes.

Our first-time buyer also gave a lot of credit to her REALTOR® and her lender. Her advice to other first-time buyers is to find professionals you can work with comfortably. She pointed out that making that first purchase can be stressful, because everything is new and you have to make many big decisions. Consequently, it is important to work with people who are willing to spend time with you and answer all of your questions.

This last sentiment was echoed by Jess Haden with Roy Wheeler Realty Co. From his perspective as an agent, he relayed that first-time buyers understandably have a lot of concerns and their REALTOR® must be willing to spend more time with them than they would with a more experienced client to assure they feel comfortable about their transaction.

Historically Low Interest Rates
Another noteworthy aspect of today’s real estate market is the historically low interest rates. While they may not be as newsworthy as the tax credit, they can be an important consideration for first-time buyers seeking to qualify for a nicer home. Kevin Holt described one of his recent buyers who said that for him the low interest rates were even more important than the tax credit. The latter is a one-time event, he said, whereas the low interest rates will continue to benefit him until he moves or pays off the home.

The combination of low rates and reduced home prices means many more buyers can now qualify for homes compared with a few years ago. Lee McAllister urges anyone thinking of buying a home to contact their lender by phone or e-mail. That way you can find out what you qualify for and can consider what she calls “what if” scenarios. For example, you may qualify for a $300,000 home, but may only feel comfortable with the monthly payment for a $200,000 home. You may also want to consider obtaining assistance with closing costs or down payments. Family gifts are very normal, she said.

Financing Options for First-Time Buyers
First-time buyers are eligible for a number of special programs that offer lower rates and/or closing cost assistance. FHA loans which require only 3.5% down are a popular choice for first-timers. REALTOR® Sabrina Thompson described FHA loans as a life-saving tool that has become very easy to work with.

Many special financing programs are available through VHDA (Virginia Housing Development Authority). For example, a loan called FHA Plus allows for a below-market, fixed-rate loan plus a second mortgage to pay for closing costs and down payment. A program called Homebuyer Tax Credit Plus is also available as long as the tax credit program is in force. Under this program, borrowers are able to obtain a second mortgage in an amount up to 5% of the home price to cover their down payment and closing costs. The loan is interest-free for 12 months and can be repaid from tax credit funds. Alternatively, borrowers can take up to 29 years to repay it, freeing up tax credit funds for home repairs or other uses. A VHDA program called SPARC allows for the lowest monthly payments for qualifying first-timers. For details, start with a visit to the VHDA Web site at www.vhda.com and then contact your lender to see if you qualify for these special programs and to determine which one fits your situation the best.

Keep in mind that often these VHDA loans have more requirements and take more time to process than other types of loans, so it is important to get started early. For example, homebuyer education classes are a requirement for VHDA loans and can be taken in person or online.

Another important local area resource for first-time buyers is the Piedmont Housing Alliance (www.piedmonthousingalliance.org). This local non-profit offers many housing-related services for first-timers, including advice, information, and access to loans and closing cost assistance to name a few. They also offer the homebuyer classes required for VHDA loans.

“Icing on the Cake”
The lenders and agents that work with first-time buyers love their jobs. Sasha Farmer expressed it like this: “It is so much fun with first-time buyers. First-time buyers are the icing on the cake.” She said she loves to go to the closings and hand over the keys, because the buyers are so genuinely excited and it is so much fun to witness and be part of their enthusiasm.


Celeste Smucker is a writer, editor and author of Sold on Me, Daily Inspiration for Real Estate Agents. She lives near Charlottesville.