First-time home buyer tax credit and tips for singles preparing to buy a house

October 29, 3:46 PMSingle Life ExaminerJ.C. Russell

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  Home sales are on the rise, partly due to federal tax incentive.  AP Photo/Matt Rourke.

The program is set to expire at the end of November, but Congress is considering an extension for the first-time home buyer tax credit. For singles the full credit, worth up to $8,000 following a home purchase, applies to household incomes up to $75,000.

Despite fraud and abuse of the system thus far, housing sales have risen, which was the program's intention. Congress is hopeful that an extended program will continue the trend, while investigating the former fraud and filling the loophole of not requiring proof of purchase or other documentation by filers. Republican Senator Johnny Isakson of Georgia wants to expand the program beyond first-time buyers and double the income limits.  The Senate has proposed an extension to April 30, 2010 for homes which will close escrow by June, as well as a $6,500 credit for non-first-timers who have lived in their current home for five consecutive years in the past eight years.

Did you know that you can be a housing virgin again?  The term "first-time" doesn't exclude all previous homeowners, so check your qualifications with a realtor. Usually, if you haven't purchased a home in the past three years, you can be considered for "first-time" status. Now, I know there are some singles out there who haven't had a relationship in three years, so take heed that all things can be new again, in time.  Like athletes coming out of retirement, and musicians with multiple farewell tours, you, too, can have another shot at being a first-time home buyer.

Singles who are literally first-timers in the real estate market, or who have never bought a home without a spouse, have several considerations about finances, credit, employment, and a safety net which will affect their buying power and lifestyle longevity.  Here are some key elements for a single buyer's "to do" list, before that dream home's "wish list" can be tackled by a realtor.

Before you meet a realtor, prepare the following items for financing qualification:

- Know your credit FICO score, and obtain reports from all three agencies, to check for errors which may take awhile to be corrected.  Fantastic news for folks with credit disputes, however, is that all three agencies have finally provided online dispute forms, and a much speedier process.  What used to take months to validate and eradicate can be achieved within 30 days, and you can monitor the progress of your dispute online, as well.  

- Have employment pay stubs or other proof of income for recent weeks.  The longer you have worked in a career field, the stronger your candidacy for bank and mortgage lending.  

- IRS tax records for past two years.  

- Bank statements from all your accounts for past two months, minimum.  This is where your latte habit is going to show up, and the regularity of your spending habits vs. deposits.  Also, your statements will reflect overdrafts, and recent large deposits which may be gifts or family loans toward your down payment - large sums of money need to be "seasoned" or solidly in your accounts well before a mortgage lender will be considering your solo ability to afford a home.

- Estimate your purchase price range with online realty sites and their mortgage calculators.  See how the size of your down payment will affect your monthly bottom line.  Do not factor in benefits or incentives ..... make a worst case scenario for yourself, and prepare according to that possibility.

- Review each credit card and loan statement for the past two months.  You may or may not be asked for these, but you can learn from them.  Although your credit bureau reports will show your payment history and current balance, the individual bills may show mortgage lenders exactly what you bought, item by item. Yes, seriously. Victoria's Secret, flight to Aruba, Halloween costume for Fluffy - what is on your credit card bill? Groceries and home utilities on credit cards may seem like a travel points winning plan to some, but lenders think staple products for your survival are not good credit signs.  Be prepared for different lenders to judge your credit habits on varying scales.  If you've been charging groceries for years, so be it, but a recent change in purchasing staple products may be questioned.  Late fees, overspending, rising APR's are all negatives.

- If you have a repossession, bankruptcy, eviction, collections, or other major derogatory category in your recent credit history, but know others who are homeowners with the same background, that's because there are creative financing packages for any type of buyer. However, mortgage rates will be affected, terms and options will dwindle, and you may benefit from renting awhile longer.

Pitfalls to avoid:

- Do not base your home purchase on the chance that a renter will make your mortgage reachable.  Lenders do not qualify you based upon someone else's ability to bail you out each month, and a renter is not a variable anyone can count on. Becoming a landlord has some legal issues attached, as well.  If you plan to share your home with someone, and they are willing to enter the realty contract as a co-signer, that's a different story, and perhaps a different incentive qualification.

- Do not rush to apply the tax incentive and make a hasty purchase, getting in over your head, or settling for a home that doesn't meet your personal standards.  If the market meets your needs and the timing is right, this is a good opportunity.  Unfortunately, economic forecasters fear another slump in the recession and housing market after this incentive stampede, due to people overspending... again.

- Leave breathing room in your prospective monthly budget.  Expect personal emergencies, home repairs, etc.  Do not shop for homes at the top of your qualification amount, and assume that the numbers on paper reflect exactly what you will be able to afford in real life.  This sounds practical and simple, but when you see that castle in the sky for just $300 more per month... it will be tempting.

Need help renting awhile longer, or lowering your rent so you can stash away a larger down payment for a later home purchase?  See this article about rentometer.com.  Don't jump on a bandwagon that's still going too fast for your financial situation.  Now that you know what credit and banking items lenders want to see in a long-term positive status, you may need to take some time lining up your ducks.

A single thought:  your single largest investment - do it right

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