This $10,000 is a lifetime limit -- and it must be used within 120 days of the date you receive it.

The law defines a first-time homeowner as someone who hasn't owned a house for the past two years. If a couple is buying a home, both must be first-time homeowners. Ask your tax accountant for more information, or contact the IRS at 800-829-1040 or see its website at http://www.irs.gov.

Using a Gift to Help With the Down Payment

Often parents and grandparents will help when it comes to buying a house. If you're fortunate enough to receive a gift of part or all of the money you need for a down payment, great. Your monthly payments will be lower, and the amount of house you can afford will be higher, than if you borrowed the down payment. As a practical matter, the gift is going to have to come from a close family member -- the lender involved in the rest of the deal won't trust that gifts from distant family members or friends are not secret loans.

Gifts up to $12,000 per year per person (in 2006) can be given gift tax-free. This means, for example, that every year your mother and father can give you and your spouse $48,000 in total without having to file a gift tax return. They should, however, give you a letter or other written document stating that the money is indeed a gift with no expectation of repayment.

Borrowing Down Payment Money From a Relative or Friend

Another way to raise money for a down payment is to borrow it from friends and family -- many people prefer to ask their loved ones for a loan rather than a gift. Of course, you must repay borrowed money, and the lender will notice this addition to your debt burden when considering your debt-to-income ratio.

But borrowing from friends and family can be a good idea if:

• You're short for the down payment, but have a relatively high monthly income. If lenders conclude that you have enough income to pay a first mortgage and another loan, they'll typically let you borrow up to half of the down payment. Most lenders will usually require that at least 5% of the purchase price come from your own funds.
• The person lending you money for the down payment will accept no, or very low, payments for several years -- by which time the house will likely have risen in value and you can refinance the mortgage and pay off the down payment loan.