The biggest hurdle to homeownership for some is the down payment and closing costs. These two expenses often deter low and moderate income individuals/families from even thinking about living the American Dream. Many people pass up the opportunity to own their own home because they’re unaware of the thousands of dollars in grant money available to assist with these expenses. The money is out there, but you need to know where to look.
This week Michael J. Abel, director for New York’s Housing Preservation and Development department (HPD); Florence Bartholomew from HSBC Bank; and Gita Hecht from the IRS talked about available grants and tax credits for first time homebuyers at the Bedford Central Community Development Corp. homebuyers seminar.
Abel’s program provides first time homebuyers with up to 6% of the purchase price of the home toward the down payment or closing costs on a new home. Most states have a housing and community development department. Check your state’s official website for your local housing office; also search for available homebuyer grants. Another helpful free money resource is Grants.gov and the U.S. Department of Housing and Urban Development (HUD). For resources specific to your state click on “state info†found on HUD’s homepage. HUD also offers the American Dream Down Payment Initiative, which provides up to $10,000 or 6% of the purchase price of the home, whichever is greater.
If you’re a New York resident, HPD should be on your list of programs to tap into. It provides first-time home buyers with a forgivable loan that turns into a grant after 10 years. Don’t be turned off by the loan part. Keep reading. The money only has to be paid back if you don’t stay in the home for 10 years. If you stay, it’s free cash! The program requires you to complete a homebuyer’s education course, and you must have your own savings to contribute to the down payment. Participants must also meet household size and income requirements.
Some banks provide home buying assistance through matched savings programs. The First Home Club at HSBC allows qualified first-time home buyers to earn $4 in grant monies for every $1 saved over a 10- to 24-month period. Bartholomew said potential homeowners can obtain a maximum grant of $7,500 by opening an account at HSBC Bank and making regular monthly deposits. At the conclusion of the program the funds can go towards the down payment or closing costs. This program is available to residents in New York and New Jersey.
If you’re not in these areas, an IDA (Individual Development Account) might be an option for you. I called Rochelle Watson, senior program manager for CFED (Corporation for Enterprise Development) to find out about the benefits of IDAs.
“They’re a good way for low and moderate income families to save towards the purchase of a home, post-secondary education, or to start or expand a small business,†said Watson.
IDAs are set up through nonprofit agencies. The government provides these agencies with grant money each year and the agency fundraises for additional monies. To apply and find out more information about IDAs contact your local office by using CFED’s directory. The program limits the number of applicants it can enroll each year. Call and ask if they are currently accepting account holders. Unlike HSBC’s program, there is no grant at the end but depending on the IDA you apply for, you can get as much as $4 matched for every $1 you save.
These funds can be used in combination with other programs and funding sources, like the first time homebuyer tax credit, which has recently been extended. Under the new legislation, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010, and close on the home by June 30, 2010. Taxpayers can claim the credit by filling out a 5405 form on either their 2009 or 2010 return.
The tax credit is a great reward for buying a home, but you can also get repaid for being energy conscious. Hecht explained that new and existing homeowners can file for the Nonbusiness Energy Property Credit by filling out Form 5695 . This tax credit is for making energy efficient improvements to homes, such as adding insulation materials, energy-efficient exterior windows, high efficiency heat pumps, and air conditioning systems.
There is also a second tax credit designed to spur investment in alternative energy equipment. The Residential Efficiency Property Credit applies to improvements such as solar electric systems, solar hot water heaters,
geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when calculating this credit. Check the manufacturer’s tax credit certification statement to make sure it qualifies before purchasing or installing any of these improvements. These services must be installed after December 31, 2008 and before January 1, 2011. You must claim the credit on the tax return of the year that the improvements are made. You can also use Form 5695 to receive these credits.You should plan to spend a few hours each day researching how many grants and tax incentives you qualify for. As you can see, there is plenty out there. Your hard research will pay off in the end.
Next week we’ll move into the second half of the class: Repairing and Building Your Credit with a focus on money attitudes and budgeting. Follow me at www.twitter.com/LaToyaReports for daily updates.
Other posts in The Homebuyers Toolkit series:
Getting Started
LaToya M. Smith is an editorial assistant at Black Enterprise