Does the credit need to be paid back to the government?

Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale.

For example, a home buyers claiming $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until 2010 tax return is filed. I fhte home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven