The first-time homebuyer tax credit is a special credit program created by the government and designed to help homeowners purchase their first homes by guaranteeing up to $8,000 in rebates for buying their homes. This initiative had several purposes, but one of its main purposes was to help a crashed real estate market recover and improve the economy as a whole by returning cash to homebuyers, which they could, in turn, spend on other items. The first-time homebuyer tax credit has rules of eligibility, but cosigning does not typically affect them.
A cosigner is a person who signs the mortgage contract along with the primary borrower and is often listed on the title to the property as well. Lenders allow cosigners in order to reduce the risk of the loan, which can improve interest rates and raise the loan limit for potential buyers. The cosigner must have good enough credit to improve the loan qualifications. This is a common process for first-time homebuyers, who tend not to have the full, positive credit history of other buyers.
A cosigner rarely matters when it comes to the first-time homebuyer tax credit. Most cosigners simply sign the documents and let the loan be fully assumed by the borrower in the traditional cosigning process. As long as the borrower uses the house for a primary residence, she can get the full tax credit. The credit does not apply twice to a jointly owned mortgage, such as when two singles take out a mortgage together; but even in this case, it is still allowed.
The tax credit is limited by other regulations that may affect the buyer, especially with the deadlines created by the federal government. With extensions included, buyers must have entered their binding agreement on or before April 20, 2010. If the purchase agreement was signed after this date, the cosigning procedure does not matter; the buyer will not be able to qualify for the credit at all.
Cosigners must be prepared to assume the loan if the primary borrower cannot continue making monthly payments. When this occurs, the cosigner must pick up the slack, or he will suffer credit damage the same as the primary borrower and may also be eligible for legal action by the lender. Cosigners will not be able to qualify for the first-time homebuyer tax credit themselves, even if they are necessary for loan approval.
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