How does the FHA $8000 tax credit work?

My fiance and I bought a house in July which means we can apply for the credit. However we are a little confused... The house sale price was for 110,000. so we will get the full $ 8000.00 but my question is...do we get a refund of $8000.00 on top of our normal refund? Or do they work it like when interest is paid on a home you knock that off your yearly income??? So if your income for that year is say 40k with the credit it would only be 32k for filing purposes???