There is a great FAQ put out by NAHB (the Nation Association of Home Builders) about the First Time Home Buyer Tax credit, you can check out the whole thing at http://www.federalhousingtaxcredit.com/2009/faq.php.  Now, before I get into this too much, let me say that I am not a CPA, and you should consult yours before you do anything that effects your taxes.

One of the questions on there is about how take advantage of the tax credit BEFORE you buy, considering that you can’t get the tax credit until after you buy.  Here’s the idea:  Increase your take home pay by increasing the number of exemptions you claim on your taxes.  Then take that take home pay and put it in the bank!  Depending on your income you might be able to save up your required 3.5% of the sales price (for FHA) within a couple of months.  Plus you are making the commitment to yourself to buy the home. 

Here’s the text from the NAHB site:
Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.

Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.