Who Qualifies as a First Time Home Buyer?

If you've already owned a home or two, you may think you don't qualify for grants and tax credits aimed at first time home buyers. In some cases you'd be right, but in other cases you'd be wrong. Confused? Don't worry, you're not alone. The fact is, the definition of a first time home buyer is different depending on the circumstances you're dealing with.

Defining First Time Home Buyers

At first glance it would seem that the qualifications of a first time home buyer are pretty straightforward. According to the rules of modern English we would define the first time home buyer as an individual or couple who is buying their first home. Seems pretty easy, right? But leave it to the federal government to redefine the term in order to satisfy its own goals and agenda.

To prove the point, let's consider both the Housing and Economic Recovery Act of 2008 and the American Recovery and Reinvestment Act of 2009. Both of these federal programs provided tax credits for first time home buyers. The first credit could be as high as $7,500 paid back to the individual by the IRS over fifteen years. The second program was similar, but provided the tax credit of up to 10% of the purchase price or $8,000. This tax credit is also repaid by the IRS over a number of years.

For the purposes of both of these federal programs, a first time home buyer was defined as either an individual or couple purchasing their first home, or an individual or couple who were re-entering the housing market after an absence of three years or more. In other words, a couple who had sold their home prior to 2005 and had since been living in a rental unit, could re-enter the housing market in 2008 and be defined under the program as first time buyers.

Extending the Reach of First Time Home Buyer Programs

While this does not make a whole lot of sense to rational, thinking people, the federal government included such individuals and couples as first time home buyers in order to make the program available to as many people as possible. To their credit, they succeeded greatly in extending this tax credit to millions of American home buyers. Whether you agree with the government's tactics or not, they accomplished what they set out to do.

On the other hand, there are other state and federally funded first time home buyer assistance programs in which the strict definition of the first time home buyer is applied. In most cases the strict definition is applied by the states when dispersing grants. The states must hold to the strict definition because unlike the feds, they can't print money. The funds they have are limited to the extent that more often than not, applications for first time buyer’s assistance exceed the available funds.

As a final example of how absurd the rules have become, the 2009 federal credit program was extended into the spring of 2010. In order to make even more people eligible for the tax credit, the federal government decided to include those who were long-time residents of their own home for at least five consecutive years during the eight years prior to purchasing a new home. If that sounds convoluted, that's because it is.

In simple English, let's say you were a current homeowner attempting to purchase a new home in 2010. If you subtract eight years from 2010 you arrive at 2002. You would qualify as a first time home buyer under the federal tax credit program if, at any time between 2002 and 2010, you lived in your current home for five consecutive years. Amazing, isn't it?

Unfortunately, federal and state governments seem to lack the ability to say “no” when handing out taxpayer dollars. They have redefined the term “first time home buyer” to suit the needs of their pet projects. It will be interesting to see how that term is redefined in the future, especially if the housing market continues to languish. It may well be that in the future the first time home buyer is anyone who wants to buy a home - at any time and for any reason.