Buying a home? Don’t miss out on state aid (© Rob Daly/Getty Images)

Location is still everything.

As the housing downturn weighed on the nation’s regional markets differently, states responded with varying degrees of help. If you happen to live in a state (or are looking to move to one) that is actively propping up its housing sector, you may have the opportunity to save big when buying a home.

Many state housing-finance authorities offer a variety of programs intended to help homebuyers, especially first-time purchasers or lower- or middle-income individuals. These programs include loan financing, down-payment assistance and state tax credits.

The programs are meant to supplement federal efforts to stimulate the market. The federal government has responded to the housing crisis in part by offering first-time homebuyers who purchase a home before Dec. 1 a tax credit worth up to $8,000.

State programs vary and can change based on the availability of funds. For example, a California program offering a tax credit for new home purchases this year burned through its $100 million allocation in two months.

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Still, there are a few common themes. Many state-level programs require homebuyers to enroll in an education program. Many phase out above a certain income and purchase price. Fifteen states now offer low- or no-interest loans advancing homebuyers their federal $8,000 credit to use for their down payment, according to the National Council of State Housing Agencies.

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The state programs present some dangers. A low- or no-interest loan or a state program offering down-payment assistance to low- or middle-income buyers may encourage people to rush into buying a home before they should, says Darin Pope, the chief investment officer for United Advisors, a holistic wealth-management firm.

“I think there still is probably too much of an effort by government to try to get homeownership at a higher level than it should be,” Pope says. “It’s OK to rent. There’s a beauty in the flexibility of it, particularly for someone who’s younger.”

Buying a home is a decision that should be based on an individual’s financial situation. “It’s certainly a decision that each homebuyer needs to think about, and that’s why counseling is a good idea,” says Garth Rieman, the director of housing advocacy and strategic initiatives at the National Council of State Housing Agencies. “I think there are still lots of people out there who are good candidates for homeownership that these programs are trying to serve.”

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For those candidates, several states offer an option called Mortgage Credit Certificates. These programs generally allow homeowners to claim around 20% of the annual interest on their mortgage as a federal tax credit, though details vary by state. These certificates don’t help with a down payment, but they free up some extra money for mortgage payments for as long as the house remains the buyer’s primary residence.

They may be more likely to continue receiving funding than programs that require states to sell mortgage revenue bonds. Mississippi’s Mortgage Credit Certificate program, for example, has “been especially useful since the economic downturn because it’s been so difficult to sell bonds that are related in any way to housing,” says Scott Spivey, the vice president for corporate communications at the Mississippi Home Corp.. Lenders may not always publicize this option, so borrowers in states where Mortgage Credit Certificates are available should ask their lender for information.

Here’s a list of some states that offer tax credits to homebuyers. Check with your state housing agency for details on these and other programs.

State tax credits for homebuyers:

StateCredit amountUnique restrictions or fees*
Arizona20% of annual interestNo significant unique restrictions.
Colorado20% of annual interestCredit score of at least 580.
Hawaii20% of annual interestNo significant unique restrictions.
Indiana20 to 35% of annual interestNo significant unique restrictions.
Kentucky25% of annual interest$500 fee.
Michigan20% of annual interestNo significant unique restrictions.
Mississippi25 to 40% of annual interest$300 fee.
New York20% of annual interestAvailable starting early September 2009;
$250-$500 fee; not available for Sonny Mae loans.
North Carolina20% of annual interestNo significant unique restrictions.
Ohio20 to 30% of annual interestCannot be used in conjunction with Ohio's First-
Time Homebuyer Program, another state program.
Texas30% of annual interest$75 fee, plus fee of 1% of loan amount.
Washington20% of annual interest$650 fee. Cannot be used for refinancing.
West Virginia20 to 35% of annual interestCannot be used with a loan financed by West Virginia Housing Development Fund's Bond Program or for refinancing.

* Most state programs include income and purchase-price limit restrictions and are primarily for first-time buyers.

Source: State housing agencies