Congress has extended the tax credit for first time home buyers through the spring of 2010.  If you are thinking about purchasing your first home, now might prove to be a great time to do so.

The refundable home buyer tax credit is equal to the lesser of $8,000 or 10 percent of a home’s purchase price for those buying a principal residence for the first time.  The credit is phased out for those earning between $125,000 to $145,000 for individuals and $225,000 and $245,000 for joint filers.  The home purchase must close by July 1, 2010 provided that a written binding contract is in place by April 30, 2009.

Remember a tax credit, such as this, is much more desirable than a tax deduction.  A tax credit is a dollar for dollar offset of your tax liability.  Since this is a refundable tax credit it means that if you don’t owe that much in taxes you’ll get a check back from the government.  Note that the tax credit must be repaid if you sell or move from your home within 36 months of purchase.

An important point to remember when shopping for your first home is to get pre-approved for a home mortgage.  Qualifying for a mortgage has obviously gotten tougher in the last year, though not impossible, so you want to make sure you have the financing in place before you start to shop.

Though a lender may approve you for a certain amount make sure you are comfortable with that potential mortgage payment.  Be careful not to become ‘house poor’.  Consider what you are currently paying in rent; is that amount comfortable for you in regards to your income level and lifestyle choices?  If so then would a mortgage payment that is higher than your current rent be a hardship?

Don’t forget you can’t call the landlord when a pipe bursts so a healthy cash reserve is also essential. Depending on the type of financing you receive you are going to need to make a down payment for as much as 20% of the purchase price.  Make sure that you don’t deplete your cash reserves with the down payment.  Consider shopping for a home that is priced to allow you to keep some cash in reserves for emergencies, maintenance and repairs.

Owning a home can be a great experience, but a few lessons from the recent past are helpful to keep in mind. Real estate can go down in value so don’t overextend yourself with a mortgage and choose the home you purchase carefully.