By now, you’d think everyone who’s a first time home buyer would know about the $8,000 potential tax credit that’s coming from President Obama’s stimulus package, the one he signed in February after he came into office. Instead, we’re finding that people are still surprised by this, and have no real clue what it is, or how it can benefit them.

When you purchase a home, each year on your taxes you get to write off all of your interest payments. The first full year of home ownership gives you the biggest bang, then every year after that it goes down.

This year, on top of any interest payments you get to write off, the federal government is giving you an extra discount if you’re a first time home owner. They’re even giving you a break on that term, calling a first time home owner anyone who hasn’t owned a home in the last three years. So, depending on how much home you buy, and what your income is, you have the possibility of getting a drastic amount of your taxes written off.

Actually, it just got better, as you can how use the tax credit up front as a part of your down payment, or as the down payment. As it’s usually recommended that you try to have a down payment of at least 5% in cash to pay at the time of signing your papers, this could be a great boost to the home owner, as no one moves into a ready made house where everything is perfect and the way they like it, such that they never make any changes. Everyone makes changes, and this makes it possible for you to hold onto some of your money to use for other things.

The amount of $8,000 is actually a misnomer. What you actually get is 8% per $10,000 of the cost of the house you’re buying. So, if you bought a $50,000 home and you fit the income requirement, you’d only get a tax credit of $4,000. If you bought a house of more than $100,000 and fit the requirement, then you’d get $8,000. And, if you live in a state like California, you can qualify for even bigger tax credits, as California has added an extra 10% credit per $10,000.

The income requirements are fairly liberal. If you’re single and make less than $75,000, you qualify for the entire thing. If you make less than $95,000, you’ll get some kind of prorated amount. If you’re a married couple, you can go up to $150,000 for the full shot, up to $170,000 for a prorated amount.

Thus, this is a win-win for buyers, and it could get more interesting. A senator from Georgia, with a background in real estate, is pushing for more of a tax credit, up to 15%; that would be incredible, but I wouldn’t hold my breath waiting for it.

This is indeed a good time to look for a new home, but you don’t have a lot of time. Although it’s being predicted that there might be something similar for 2010, for this year you have until December 1st to purchase your new house. So, time is ticking; get on it.