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Clock running down on first-time home buyer tax credit

new homesAccording to a news report by the National Association of Home Builders (NAHB), the clock is running down on the $8,000 tax credit for first-time home buyers. With less than four months to go, builders are urging qualified prospective buyers to start the sales process long before the Nov. 30 deadline.

Builders are also warning that faulty appraisals, completed using foreclosed properties as comparables for new homes, have been slowing down the sales process, creating hiccups in the financing stage that can often push the closing date much later than originally expected.

First-time buyers should also anticipate tighter lending standards that generally don't allow 100% financing, making buyers responsible for coming up with enough money prior to their purchase to meet required downpayment and closing costs.

The NAHB recommends young families considering becoming home owners start the process long before they put a bid on a new home. As part of that effort, builders can provide key educational information on the home buying process - including financing and closing - that buyers need to ensure that they occupy their new home in time to claim the tax credit.

For home buyers who need assistance with downpayment and closing costs, some state housing finance agencies are able to provide a short-term loan based on the home buyer's qualification for the federal tax credit.

Sixteen state housing finance agencies - in Colorado, Delaware, Florida, Idaho, Illinois, Kentucky, Massachusetts, Missouri, Nebraska, New Jersey, New Mexico, Ohio, Pennsylvania, Tennessee, Texas and Virginia - are participating in loan programs to help facilitate home sales for first-time home buyers in their area. Each state is different and qualifications and restrictions vary among the programs.

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Builders say that home buyers should be warned, however, that there are organizations or individuals providing this service who are not legally permitted to do so. If the organization is a unit of state government, such as a state housing finance agency, it is safe to say that it is reputable. Otherwise, a home buyer should check with their local Better Business Bureau or through a state or local government's department of consumer affairs to ensure that the program they are working with is legitimate.

Although the tax credit has three requirements listed for home buyers to qualify - status as a first-time home buyer, time frame in which the home must be purchased, and income limits - it is sometimes not that simple. Specific situations - such as those involving the sale of a home between related individuals or prior ownership of a mobile home as a primary residence - may result in a buyer's disqualification from claiming the credit.

In a statement released last week, the Internal Revenue Service (IRS) warned taxpayers to beware of first-time home buyer tax credit fraud. Home buyers who may be unsure of their status on claiming the tax credit should seek professional advice from a certified public accountant or an enrolled agent licensed by the federal government.

Home buyers who may need additional information can find answers to frequently asked questions about the tax credit at www.federalhousingtaxcredit.com.

More: Avoiding First Time Buyer Mistakes | More First Time Tips

Tom Kraeutler is the AOL'S Home Improvement Editor and co-author of "My Home, My Money Pit: Your Guide to Every Home Improvement Adventure." He delivers home remodeling tips each week as host of The Money Pit, a nationally syndicated home improvement radio program.

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