Under the existing $8,000 first-time home buyer tax credit law, no, the fact that your name was on the deed to a home (even if it’s not on the mortgage) would exclude you from taking the first-time home buyer tax credit. There is, however, some good news for you.

Congress is voting today on whether to extend the first-time home buyer tax credit program (which is slated to end November 1). If passed, the extension also includes tax credits of up to $6,500 for buyers who have owned their existing homes at least five years. To take the credits, both groups of buyers would have to sign a purchase agreement before April 30, 2010 and close by June 30.

Good Luck!

David @MoneyUnder30

You seem to have stumbled upon an interesting idea, but unfortunately it won’t work.

The tax-credit you’d be eligible for is 10 percent of the home purchase price up to a maximum of $8,000. So if you bought a $10,000 home, you could only claim a credit of $1,000. You would have to buy a home that cost $80,000 or more to get a credit for the maximum $8,000.

Even if the law would allow you to buy an $8,000 and get the $8,000 tax credit (making the home free), an $8,000 property—even if it were actually free—is going to cost thousands (if not tens of thousands) to do anything with. Live in, flip, etc.

Properties this cheap (even in tanked real estate markets like parts of Florida and Michigan) may need to be torn down and rebuilt. Even if they’re structurally sound, they may not be inhabitable. I’d stay far, far away.

Finally, buying a foreclosed home is not as easy as many make it seem. Banks can take months to get back to an offer on a foreclosed home—if they respond at all. Any foreclosed home that’s a really good deal will attract plenty of investors and home flippers who know what they’re doing, so you’ll be competing with strong offers (usually cash). Finally, there’s the title problem.

With many of today’s foreclosures, the mortgages have been split and sold so many times, it’s unclear who actually holds the title. In many states, people have bought foreclosed homes only to learn that the seller never had the title. The result? The buyer is stuck with a home that they can never legally sell again—or worse—that a legitimate owner may be able to claim from them someday.

At the moment, I’d focus on getting a job (which mortgage lenders will absolutely require; they won’t lend to somebody with perfect credit if they don’t have an income). Once you get that nailed down, if the tax credit is still available, I’d try to buy a really inexpensive property, but not so cheap that you’ll spend more than the purchase price making it livable.

Thanks for your question, Michele. This is a tough one. In today’s credit market, the best lenders usually want to see down payments of twenty percent. Some lenders will still approve you without much of a down payment, although you’ll likely pay a higher interest rate, plus you’ll have to pay private mortgage insurance (PMI). This adds to your monthly mortgage payment but doesn’t give you anything in return—that insurance is for the bank.

Although this is a good time to buy a home, I don’t think that there is any one time to buy a home. Certainly people who bought real estate at the top of the market a few years ago thought it was still a good time to buy a home. Yes, housing prices are low and yes, mortgage rates are low right now. But we don’t know if they’re going to go up tomorrow or in five years.

If you decide you really want to buy a home soon for personal reasons even if you don’t have twenty percent to put down, then go talk to a mortgage lender to find out exactly what kind of loan (and what rate) you can get. Ask them how that loan would change if you had a bigger down payment. Then ask yourself: Is it worth it, or should you wait?

Also, remember that once you become a home owner, there are going to be lots of new unexpected expenses down the road. If the water heater breaks, you can’t just call the landlord, you’ll have to fork out big bucks to repair it. That’s why I recommend first-time home buyers not only save up a down payment, but also a healthy emergency fund for all those home repairs that will inevitably pop up.

Sorry I don’t have a more “black and white” answer, but I hope it’s helpful anyway.

Good Luck!

David @MoneyUnder30