I am also a tax professional- this is the information on the First Time Buyers Credit to date- like with all tax rules things change year to year.
Taxpayers who purchased a principal residence April 9, 2008 through June 30, 2009 who have not owned a principal residence in the previous three years may claim a refundable credit. The maximum credit is $7,500 and there are guidelines that reduce this amount when you do your taxes. There are no restrictions on what you can use the money on- it is added to your refund so you can use it for anything like repairs, remolding, or even paying off a couple of small bills or credit cards.
The credit, however, acts more like a no-interest loan because it must be repaid to the government over 15 years. It is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. If you qualify for the full $7,500 then you would repay $500 for 15 years out of your tax refund each year.
If more than one person owns the home and all qualify for first time home buyers the credit can be split between all persons involved if not married. If one person qualities for the first time home buyer and the other one does not (they owned a home within three years) the person who qualifies can still claim their part of the credit no matter if the other person could not.
The money can not be used as a down payment as the closing has to have taken place to claim the credit. It is not based on a credit score or job history it is only based on your income taxes in the year you are claiming the credit. It does not matter what type of home you buy- foreclosed or not- as long as it is considered real property.
This is not a mandatory credit and you can elect not to take it. If you are not planning to keep your home very long then this credit might be for you because if you sell with an outstanding credit still owed then this will need to be paid off in the year your home was sold. Also if you decide to rent out this home the credit will also become due in the year that is done. You need to ask yourself some questions before taking this credit and make the best choice that suits you.
The First-Time Homebuyer Credit can be claimed on Form 5405, which is filed with your 2008 or 2009 federal tax return.