New Tax Credits  To encourage consumers to shop for a home, federal and state governments are giving away free money. The federal First-Time Home Buyer Tax Credit gives a maximum of $8,000 to those who haven’t owned a home in the past three years. To qualify for the credit, you must buy a primary residence through the end of November. (Click here for first-time mistakes home buyers make.)  On the state level, some states are offering additional tax credits that home buyers can combine with the federal credit, says Errol Samuelson, president of Realtor.com, a real estate listing site. California offers a tax credit of $10,000, or 5% of the purchase price, whichever is less, for sales that close through March 1, 2010. In Texas, residents can claim a mortgage interest tax credit of up to $2,000. And Ohio is offering a loan for the down payment and closing costs of up to 3% of the home’s purchase price.   Click here for more on the First-Time Home Buyer Tax Credit.

100% Federal Financing Offers   Believe it or not, you can still buy a home with no money down. Federal and state governments offer to cover the down payment for you if you don't have the cash.  
Typically, to qualify for a Federal Housing Administration-insured mortgage, borrowers must make a minimum 3.5% down payment. (FHA-insured mortgages currently account for 30% of mortgage volume, says Chip Cummings, president of Northwind Financial, a Grand Rapids, Mich.-based training and consulting firm for mortgage and realtor firms.) However, in certain states, you don’t even need to have the 3.5% down payment. California, Colorado and Pennsylvania, among other states, offer to cover that amount in the form of a second mortgage. (Such deals can be risky, though. Read our story to learn more.)   Also, the Department of Veteran Affairs offers up to 100% financing to veterans. And the Department of Agriculture covers up to 100% of the financing for homes purchased in a rural location.

Short-Sale Packages  With so many homeowners owing more on their homes than the home is worth, many sellers are finding themselves in a sticky spot: If they sell their home for less than the mortgage, they have to cover the outstanding balance. To keep from getting hit with this sometimes surprisingly lofty amount, many sellers are arranging a short sale package with their lender.

Under this arrangement, the borrower needs to prove to their lender that they can no longer afford to hold onto the home and/or that someone has offered to buy it at a price that falls short of the initial mortgage amount, says Cummings. The application for a short sale package typically requires financial statements including bank statements, paycheck stubs and unemployment letters that prove your inability to pay the mortgage. In addition, it should include a list of major repairs that the house needs, a letter from the individual who’s offering to buy the house, or the amount that you and your real estate agent project the home will sell for, says Cummings. Should your home sell for $200,000 but you owe $240,000, you’ll be off the hook for the remaining $40,000 and your lender will take a smaller loss than if you had gone into foreclosure.  Click here for more on short sales.

Independent Home Appraisers  Until recently, mortgage lenders and real estate brokers handpicked home appraisers – who would then issue an estimated value of a home typically after a buyer made an offer.  But in May, the Home Valuation Code of Conduct (HVCC), which is aimed at reducing instances of home appraisal fraud, was put in place by the government. This lending guideline requires that a large appraisal management company send an appraiser to determine the value of the home, says Gibran Nicholas, chairman of the Ann Arbor, Mich.-based CMPS Institute, which trains and certifies mortgage lenders and brokers. In the past, realtors and mortgage lenders pressured appraisers to set the value of the home at the same level as the purchase price, says Nicholas.  While HVCC eliminates such shady dealings, it poses a new problem: If the appraisal comes in below the buyer’s offer price, the mortgage lender will lower the amount on the mortgage to reflect the appraisal price. That could put the buyer in a big financial bind. Once a bid is on the table it's difficult to retract it. So if the bid outweighs the mortgage amount, the buyer will be on the hook for the difference. And should the buyer decide to walk away from the deal, they risk losing their earnest money deposit (a portion of the down payment).  Before making an offer, buyers should include an agreement in the contract that they won’t be required to pay any extra amounts that may result from an appraisal and/or they reserve the right to get a second opinion from another HVCC-qualifying company. Also, they should include a stipulation that says their earnest money deposit will be refundable.

Flipping Homes is Riskier  Before the real estate bust, flipping homes was all the rage. Buyers would purchase a home, paint the walls, upgrade the kitchen and resell it a few months later for a profit. Now, even though there's a glut of temptingly affordable homes on the market, flipping can be even more risky, says Leonard Baron, adjunct professor of real estate investing at San Diego State University. The home could linger on the market for months or even a year before it sells and in some cases, the owner will have to turn the property into a rental in order to cover the mortgage. Also, many buyers underestimate the cost of renovations – especially in foreclosed homes that have been gutted. As a result, they risk paying more than they budgeted for renovations before selling the home.  Click here for mistakes home sellers make. By AnnaMaria Andriotis,
Reporter, SmartMoney.com