WHEN NATASHA SMITH moved from Florida to Washington nearly two years ago, she dealt with many of the adjustments that come with a major relocation. But one change she wasn’t willing to undertake was shelling out thousands of dollars for rent every year. So, Smith, 25, crashed at her older sister’s house in Clinton, Md., while she embarked on a yearlong quest to buy a condo.

Her search came to an end in mid-April when she closed on a two-bedroom condo in Hyattsville near the Metro station. And it ended on an unexpected high note: The new first-time home buyer federal tax credit unveiled in February as part of the economic recovery act essentially repaid her $8,000 in cash.

“Toward the end of my search, I heard about the $8,000 tax credit, and that gave me more incentive to finally go through with something,” says Smith, an advertising and sales coordinator for the American Resort Development Association. “It definitely sped up my decision.”

Smith’s condo is one of a projected 160,000 home sales to be stimulated by the new tax credit, according to the National Association of Home Builders. That number includes 101,000 first-time buyers eligible for the credit and another 59,000 existing homeowners who will be able to trade up because a rookie buyer purchased their home, the NAHB said.

Indeed, government officials and real estate experts point to first-time home buyers as the market’s best hope for a speedy rebound. To help prod such home sales along, qualified first-timers are eligible for a tax credit equal to 10 percent of the property value up to $8,000.

Smith closed just after April 15, so she was able to file for an extension and claim the tax credit on her 2008 tax returns. About three weeks later, $8,000 had been dropped into her bank account. She plans to invest the money now while stocks are still cheap enough to snatch up.

While the promise of a tax credit may be enough to push plenty of indecisive buyers to finally sign on the dotted line, the U.S. Department of Housing and Urban Development has sweetened the perk even more. In late May, HUD announced that first-time home buyers could request advances on the tax credit from Federal Housing Administration-approved lenders.

Now, home buyers needn’t wait until tax time rolls around; they can access cash right away via short-term “bridge” loans borrowed against the tax credit. Consider it a vote of confidence folks can take straight to the bank.

“The tax credit is incredible for first-time home buyers who may not have a lot of cash saved for their down payment plus closing costs,” says Avi Galanti, a real estate partner with Bethesda’s Jane Fairweather Team. “That $8,000 can come in very handy for closing costs, which can be about 3 percent of your property value.”

Generally, the tax credit can be used for closing costs or an additional down payment above the minimum 3.5 percent required by FHA lenders, though certain state housing finance agencies and nonprofits offer secondary financing that can be used toward the 3.5 percent down payment. “The days of no-money down are essentially over,” says economist Robert Dietz, director of tax issues for the National Association of Home Builders.

Only first-time home buyers qualify for the tax credit, but its fine print is more inclusive than you might guess.

“What typically stands out as a surprise is how the law defines a first-time home buyer,” Dietz says. The official characterization is a home buyer who has not owned a principal residence during the three years prior to purchase.

To qualify for the full credit, home buyers must earn no more than $75,000 annual salary, or $150,000 for married couples. A portion of the credit is also available for applicants who make up to $20,000 more than those maximums. They’re also obliged to live in the purchased home for at least three years, and home buyers need to settle properties from Jan. 1 through Nov. 30, 2009. That means first-time buyers who want to take advantage of the credit should begin their search early, since real estate experts say it often takes at least a few months to complete a home purchase.

Intended to jostle fence-sitters into ownership, the tax credit’s appeal is a no-brainer for many.

“It’s literally free money that goes in your pocket,” says real estate agent Maceo Thomas, of Long & Foster on Capitol Hill.

Unlike the $7,500 credit enacted in 2008, which was essentially a no-interest loan, the $8,000 tax credit does not require repayment. And it’s also a step up from the standard $5,000 credit for first-time home buyers in the District, which was first passed in 1997, though restrictions vary between the two. District buyers can claim only one credit.

“It’s been an incredible incentive to get the phone to ring,” says Brandon Green, principle broker with Brandon Green and Associates in Adams Morgan. He says many first-time home buyers have called him recently because they suddenly realize they can actually afford the properties they want to buy, and the tax credit acts as an effective tipping point.

Experts hope the credit will also alleviate the foreclosure-crowded glut of homes on the market.

Newlyweds Josh and Sarah Nester recently bought a bank-owned rowhouse in the Petworth-Columbia Heights vicinity at a fraction of its 2007 price.

“The tax credit was a big part of us choosing to buy now,” says Josh Nester, 33, who works for NAHB. “We could have waited and played the market out and seen how low rates and home prices would go, but the tax credit ends at the end of the year. The credit gives us the ability to have a good start, and allows us to prepare for the unexpected expenses that buying a house incurs.”

Written by Express contributor Katie Knorovsky
Photos by Kevin Dietsch for Express