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Editor’s note: We are monitoring government moves regarding the first-time home buyer tax credit and will update this page as necessary.
Now that the presidential election has been decided, speculation is bubbling up about a possible revival of the first-time home buyer tax credit.
While Kamala Harris had promised to offer $25,000 in down payment assistance to prospective home buyers to recharge the housing market, Donald Trump remained mum on the campaign trail regarding any similar incentive. However, there were hints provided about potential plans in Republican campaign documents.
With the Federal Reserve rate and mortgage rates holding firm, the housing market is wound tight with stifled demand. Will the new Trump administration find a way to relieve the pressure?
Will the first-time home buyer tax credit return?
The Republican 2024 platform stated that tax incentives and other support for first-time home buyers — as well as opening portions of Federal Lands to new construction while reducing regulations — would boost home construction and ownership.
The Republican roadmap also said that "slashing inflation" would reduce mortgage rates.
Donald Trump has also expressed an interest in steering the Fed's monetary policy in an effort to lower mortgage rates. The goal: to get home loan rates back down to 3%, "maybe even lower than that," Trump has said.
What was the original first-time home buyer tax credit?
The original first-time home buyer tax credit was created by Congress in 2008 and ended in 2010, though service members and some federal employees had an extra year's eligibility for the tax credit.
Providing a tax rebate on income taxes owed, it allowed a credit of up to 10% of the home purchase price on a principal residence to a maximum of $8,000.
The IRS defined a first-time home buyer as someone who had not owned a house in the three years before the purchase of the home the tax filer was seeking the tax credit on.
State first-time home buyer tax credits
With a federal tax break currently nonexistent, first-time home buyers can explore possible mortgage credit certificates in their state. MCCs are issued by state housing finance agencies and allow home buyers to take a portion of the mortgage interest they pay annually as a federal tax credit, up to a $2,000 limit.
The tax credit can range from 10% to 50% of the mortgage interest paid annually on a primary residence. MCCs are subject to income limits and other restrictions set by a state housing finance agency and primarily serve low- to moderate-income households. Once approved, the home buyer receives a credit certificate applied to federal income tax owed on their tax return.
Find information on the housing finance agency in your state.
State first-time home buyer programs
Some cities, counties, and states also provide down payment assistance programs, reduced interest rates and grants to qualified first-time home buyers. State housing finance agencies and the Department of Housing and Urban Development can help you find these home-buying assistance programs. You can also search your local municipality's website for mortgage programs where you live.
Income limits, location, credit score requirements, and other restrictions may apply to these grants, loans or down payment assistance programs.
Other loans for first-time home buyers
First-time home buyers are often eligible for loan programs tailored to their needs. One of the most important benefits includes lower down payments:
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Conventional loans offer down payments as low as 3%.
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FHA loans offer down payments as low as 3.5% for credit scores as low as 580.
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VA loans and USDA mortgages offer no-down-payment programs. VA loans are for military personnel and their families, while USDA loans are for low-to-moderate-income borrowers in rural areas.
The best mortgage lenders for first-time buyers will also help you find loan and assistance programs that you may qualify for.
Tax breaks for homeowners
While it is of no help in clearing the hurdle to homeownership, once you are settled in, you can look forward to long-held tax breaks still in effect.
The tax benefits include deductions on discount points and origination fees paid during the loan process, as well as a mortgage interest deduction and a tax deduction on the property taxes you pay as a homeowner. There are also tax incentives for energy-efficiency home improvements and more.
