How to Get a First Time Homebuyer Tax Credit?

Learn how to secure a first time homebuyer tax credit to reduce your tax bill

This guide breaks down what a first time homebuyer tax credit is, how it works, and who qualifies. You’ll discover how to use this benefit strategically and explore options beyond federal programs. 

Why a Homebuyer Tax Credit Can Save You Thousands 

Understand the Value of a Homebuyer Tax Credit →

A homebuyer tax credit reduces your tax liability dollar-for-dollar, unlike deductions. First time homebuyers using Mortgage Credit Certificates (MCCs) may save up to $2,000 annually. These credits help offset mortgage interest costs and make monthly payments more manageable, especially in high-cost markets. The cumulative impact over several years can result in significant long-term savings, freeing up funds for home improvements or other financial goals. 

Compare Federal vs. State Incentives →

While federal homebuyer tax credit programs may come and go, state programs are often underutilized. States like California, Texas, and New York offer MCCs and property tax relief that can be used in tandem with other first time homebuyer assistance. Researching local opportunities can maximize your savings. Many states have specific income limits or purchase price caps, so knowing the guidelines in advance will streamline your application process. 

The Importance of a First Time Homebuyer Tax Credit 

Lower Entry Barriers in High-Cost Markets →

A first time homebuyer tax credit can reduce upfront costs and long-term housing expenses, which is crucial in markets with rising prices. In fact, according to the Urban Institute, refundable tax credits have been linked to a 7% increase in homeownership rates among lower-income households. In addition, with inflation influencing home prices, these credits help level the playing field for buyers with limited cash reserves or access to family financial support. 

Long-Term Savings and Budget Stability →

Annual credits like MCCs apply every year, creating consistent savings. For example, buyers in the 24% tax bracket could save over $165 monthly. This can mean the difference between financial stability and strain for many first time homebuyers. Over a 30-year mortgage, this equates to nearly $60,000 in retained income—an advantage that can boost retirement contributions, education savings, or emergency funds. 

Steps to Claim a First Time Homebuyer Tax Credit 

Secure Pre-Approval and Find an Eligible Lender →

Work only with lenders certified to issue MCCs or manage local tax credit programs. Ask early in the process whether they offer tax credit support and how to apply. Not all lenders participate in state or local programs, so be proactive and request a list of certified options. 

File the Right Forms and Keep Documentation →

For federal MCC claims, submit IRS Form 8396 with your tax return. State-specific programs may have their own forms. Maintain copies of your closing disclosure, MCC certificate, and all tax forms year after year. If audited, your documentation will protect your eligibility and continued access to recurring credits. 

Common Questions About First Time Homebuyer Tax Credits 

Can I claim both a tax credit and a down payment grant?

Yes. Many programs allow layering benefits. You can use a homebuyer tax credit in addition to down payment assistance or closing cost grants. Always confirm stacking rules with your lender or housing counselor. Bundling these programs can significantly lower upfront cash requirements and long-term expenses. 

What if I already bought my home—can I still claim a credit?

Possibly. Retroactive credits may apply if new legislation passes or you qualified but didn’t apply at closing. Check with a tax professional to determine if you meet the criteria. Some state MCC programs allow filing within a specific window after closing. 

Do I have to repay the tax credit if I sell my home?

It depends on the credit program. Some credits have recapture clauses if you sell or refinance within a certain time frame. However, many states waive repayment under specific conditions. Always read the terms or ask your housing counselor to explain the fine print. 

Can I transfer the tax credit if I move or refinance?

In most cases, no. The credit is tied to the mortgage and property. Refinancing often voids the MCC unless your new lender can reissue it. Ask your loan officer about this before refinancing. 

The first time homebuyer tax credit is one of the most impactful financial tools available for new buyers. It can help reduce federal or state taxes owed, increase monthly affordability, and enhance long-term financial stability. When layered with mortgage deductions, property tax relief, and government grants, this credit becomes part of a larger strategy for sustainable homeownership. Its value extends beyond just initial affordability—it can help buyers remain in their homes by easing the financial pressures of monthly expenses. 

Using all available tax credits and benefits can make the dream of owning a home a reality, even in competitive markets. Whether you’re just starting your journey or closing soon, it’s not too late to evaluate your options. Connect with experts who can walk you through eligibility, forms, and planning strategies to get the most from your home purchase. And don’t forget—every dollar saved in taxes is a dollar you can reinvest in your future. 

Want to unlock savings through a first time homebuyer tax credit? Use Homebuyer Wallet’s resources to check your eligibility, compare programs, and connect with certified professionals who can guide you every step of the way. 

Expert Insights and Legislative Outlook 

Will the Federal Tax Credit Return? →

There’s growing bipartisan support for reinstating a federal first time homebuyer tax credit. The First-Time Homebuyer Act of 2021, reintroduced in Congress in 2023, proposes a refundable tax credit of up to $15,000. Though it hasn’t passed yet, experts suggest continued advocacy from housing groups could make this benefit a reality soon. 

What to Expect from Future Programs →

Based on recent housing market trends, future credits may include targeted programs for underserved communities or high-cost areas. Buyers should stay informed via HUD, state housing finance agencies, and reputable homeownership platforms. Following legislation now positions you to act fast if a new federal program becomes available. 

Final Financial Considerations →

As you plan your homebuying strategy, consider your total financial picture. Are you eligible for state-level MCCs, utility rebates, property tax exemptions, or employer homebuyer assistance? Each of these options can work alongside a first time homebuyer tax credit to make homeownership more affordable and sustainable over time.