In an attempt to revive the real estate market and our economy in general, the federal government is now offering a very big incentive to first time home buyers. If you qualify and are looking to purchase a home, you may be entitled to $7500 in tax credit just for buying a home. How does the first time home buyer incentive work and do you qualify?

In order to qualify for the first time home buyer incentive, you need to purchase a home in the United States and have it be your primary residence. In other words, you cannot purchase the home as an investment and rent it out to others for income. You must live there. Secondly, you cannot have owned a home for a minimum of three years. The program is basically targeting those who have been thinking about buying a house but have yet to do so. The hope is that this incentive will push them over the fence.

The amount of the tax credit that you can receive is up to 10% of the purchase price of the home, with a maximum payout of $7500.

The maximum annual income amount for an individual to qualify for this program is $75,000. The maximum amount for a household is $150,000. If your income exceeds these amounts but is less than $90,000 and $170,000 respectively, you may still qualify, but for a lesser amount.

The tax rebate must be payed back to the government, but they give borrowers fifteen years to do it and do not charge any interest. Small payments of around 6 percent a year are required.

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Before Looking for a Home

Buying a house can be a new and exciting process; it can also be very confusing and stressful. Becoming educated about the house buying process and being prepared can reduce a lot of this stress and confusion. Anyone buying a home should take the following steps before they even step out to look at a house.

Check your Credit History

The moment you decide that you are ready to buy a house is the moment you need to get a credit report. When pulling your credit report, be sure to use a service that provides you with copies of your credit history and score from all three credit bureaus: Experian, Equifax, and TransUnion. Not all credit information is reported to each bureau, and lenders do not all check the same credit bureaus to determine your credit score so it is important that you get a copy from each bureau.

Obtaining a credit report early on in the home buying process is important because if there are discrepancies on your reports you must write to the bureaus and request that they are corrected. Depending upon how busy the bureaus are, this process can take up to months. Fixing errors on your credit history can result in a higher credit score and improvements in your credit score may qualify you for a lower interest rate. A loan with even a .25% lower interest rate can save you thousands of dollars over the course of your loan.

It is also important to note that pulling your own credit report will not lower your credit score in any way, this only happens when companies, like banks pull your history in attempt to approve you for items such as loans and credit cards.

Research Potential Loan Programs and Lenders

A house loan is often the largest and longest term of a loan that many individuals will ever receive in their lifetimes. Therefore, time should be taken to review potential lenders and loan programs that you may qualify for. For example, if you have a not so perfect credit history or need a low down payment you might want to see if you qualify for a FHA loan. If you are a veteran you may qualify for a Veteran’s Administration loan, which among other things allows individuals to put no money down without having to pay Private Mortgage Insurance. Some lenders offer special rebates, promotions, and programs for home buyers that ease the expenses involved with buying a home. Individual lenders vary in the interest rate they charge and the fees involved in the loan process. Even the nonrefundable application fee for some banks is upwards to $500, so it is important to research a bank and become satisfied with the loan programs they offer before you apply.

Get Prequalified/Preapproved

There is a big difference between getting prequalified and preapproved for a loan. When you get prequalified for a loan there are generally no fees involved and the bank gives you a rough estimate as to what they would give you for a loan based on the information you’ve provided them. It is not completely accurate and many sellers will not accept offers from buyers who are only prequalified. When you get preapproved for a loan you will have to provide more documentation and pay an application fee. When you are preapproved the bank generally states that you are eligible for the exact amount of your preapproved amount, granted that all the information you have provided to them is accurate.

If you’ve decided that you are ready to buy a house one of the very first steps you should take is to get prequalified for a loan. Before going out to look at houses that may potentially be out of your price range, get prequalified for a loan so you know what houses you should be looking at. If after getting prequalified you find that you qualify for a lot less than you anticipated for, ask the lender what you could do to qualify for a larger loan. You may discover that your debt to income ratio is too high or that the length of your credit history is too short. You may then decide to reduce some of your debt or if you are satisfied with the amount you may decide to get preapproved for a loan.

Determine How Much you Can and Want to Spend

Now that you have checked your credit history, and have gotten prequalified or preapproved for a loan you must determine how much you can really afford to spend. Do not blindly assume that you will be able to afford the payments your lender says you can. Keep in mind that lenders often push the limits of your loan to the outer boundaries, in order to get you the biggest loan possible and to make more money. If the mortgage payment you qualify for is a lot more than your current mortgage or rent payments look at the new value realistically. Can you REALLY afford that payment? Can you live comfortably with that much less money per month? If you are used to renting, keep in mind that you will now be responsible for repairs, yard work, insurance, and taxes. Do not tell yourself that you will give up certain activities or change your lifestyle in order to afford your new payment.

House buying should be an exciting and stress free process. If you educate yourself about lending processes and take the steps above you will be more prepared than many other home buyers.

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If you are ready to buy your first home, you should consider a number of things. Don’t miss the opportunities that are available for first time home buyers. First-time home buyer information is available from a number of sources. You can go online to find out what is available for you or you can have a financial expert from your banking institution to help you as well.

First-time home buyer programs have been created by the government to help those who are looking to buy their first home. Most of the programs have few restrictions except that neither your or your partner have purchased a home before. Your credit history, current income, and possible collateral are not important. Timing can play a role in what help you may receive.

Imagine receiving 20 thousand dollars to help use as a down payment and you don’t ever have to pay it back. The first-time home buyer program offers grants such as these. The only drawback may be that the money is gone from the program for the year. Since the program is federally funded, it only has a certain amount of money. Once that has been allocated, you will have to wait until the next year for funds.

Lowest mortgage rates may be possible to some people as part of the home buyer program. This is made possible because the government will guarantee the funds. If you are looking to purchase your first home, this could be the best option for you and your partner. Because of the failing economy, many banks are looking for 20% down payments on a home purchase. With the grant money from the program, you can make this possible and still have some funds left over to deal with closing costs.

Don’t delay; do the research and take advantage of what the government can help you with.

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As a home buyer there are certain expenses that you expect. You know that you will have to have a down payment and you will need to pay your mortgage. You may even know that the home needs to be inspected. There are any number of other expenses that you may not expect that will cost you money and you need to make sure that you have enough cash in reserve to cover these expenses.

Home Mortgage Costs

In addition to the mortgage payments, there are lender fees that you have to pay. Every lender requires a different mix of fees. When looking at different lenders, besides considering the interest rate they are offering make certain of the various fees they charge. Below is a list of potential fees they might require or offer:

Credit report fee: Some lenders do not charge this fees and some do. Flood certification fee: This is not required in some areas where flooding is not an issue. Origination fee: Some lenders wave this fee. Processing fee: This is another fee that is sometimes waved. Appraisal fee: This is needed to determine the value of the house. Underwriting fee: This is for reviewing the appraisal and your credit history to determine if this is a good loan or not. Application fee: When other fees have been assessed this is often not charged. Discount points: Paying discount points to your lender at closing reduces your interest rate. This is advisable if you will be in your home long-term Loan lock fee: You may only want to pay this if you get a really great rate and you are afraid that the rates may go up. Broker fee: When you use a mortgage broker, they charge a fee for the service of finding you the best rate possible. This would be charged instead of an origination fee Inspection fees: Home inspection and Pest inspection are required to make sure it is a sound investment. Commitment fee: Usually you don’t need to pay this fee. Tax service fee: Most lenders pay the property tax for you and can charge a fee for this. Miscellaneous administrative fees: These are not so common, but can occur.

Taxes and Fees Owed to the State

Many states require transfer registration fees and various taxes. Every state is different, so research the laws of your state. Some states even charge a sales tax. Some states also charge a stamp duty although first home buyers sometimes get a break.

Lenders Compel Mortgage Protection Insurance Purchase

Mortgage insurance is required by the lender when you put less than 20% down when purchasing your home. It can protect you in circumstances where you might not be able to pay your loan. Coverage can pay out in case of death, disablement or involuntary unemployment.

Legal Fees Vary from State to State

Legal fees may cost up to two per cent of the value of the property. This depends on the state and the type of transaction of your purchase.

Do Not Forget Moving Costs

This of course depends on the distance that you are moving. Are you moving yourself or are you hiring it done. You may also need to pay deposit fees in order to get utilities hooked up. You may want to paint or do some other home improvement projects before moving in.

Consider all these costs when you buy your new home, so that you don’t get any nasty surprises on closing or moving day.

More on Arizona Real Estate.

If you put less than 20 percent down on a home mortgage, lenders often require you to have Private Mortgage Insurance (PMI). PMI protects the lender if a home buyer were to default on the loan.

PMI is extra insurance that lenders require from most home buyers who obtain loans that are more than 80 percent of their new home’s value or stated more clearly, a home buyer with less than a 20 percent down payment is required to pay PMI. The premium is usually paid on a monthly basis usually along with the mortgage payment and can range approximately between $250.00 to $1,200 per year.

Homebuyers may ask, “What is the benefit to them”? PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on their mortgage or loan. The greater benefit to the home buyer is that with this type of insurance, the home buyer can buy a home with as little as 3 percent to 5 percent down payment. This allows the buyer the opportunity to buy a home sooner rather than waiting years to accumulate a large down payment.

For example, the current national median for a home is $248,000.00, the 20 percent down payment required for such a home would be $49,600. With PMI, the home buyer (using the 5 percent down payment) would be required to have a down payment of $12,400.00 a difference of $37,200 dollars! This is obviously a huge difference and as mentioned before enables a home buyer to get into a home a lot sooner than he or she might have anticipated.

When the loan is paid down to 80 percent a homeowner can request the cancellation of PMI. Of course, in the past, the problem had been that the home buyer would be saddled with the responsibility of tracking their payment history and requesting cancellation. Many homeowners were not aware of the possibility and they would continue paying unnecessary premiums for several years.

A new law called The Homeowners Protection Act of 1998 – which became effective in 1999 – required lenders to provide certain disclosures concerning PMI and established rules for automatic termination and borrower cancellation of PMI on home mortgages. These protections apply to certain home mortgages signed on or after July 29, 1999 for the purchase, initial construction, or refinance of a single-family home. These protections do not apply to government-insured FHA or VA loans or to loans with lender-paid PMI.

Other exceptions include: if your loan is a “high-risk” type of loan, and another exception is if you have not been current on your payments within the year prior to the time for termination or cancellation. A third exception is if you have other liens (A form of encumbrance which usually makes the property security for the payment of a debt i.e. judgments, unpaid taxes, mortgages, etc.) on your property. For these loans, your PMI may continue.

If a homeowner had not considered their PMI requirements when they purchased a home, a homeowner should ask their lender or mortgage servicer (a company that collects your payments) for more information about these requirements or conduct an internet search on the term “private mortgage insurance” for more additional in depth information.