Good news. This will be a major benefit to help many first time homebuyers. I posted an article about this earlier. HUD has been working on the mechanics behind how to allow buyers to use the tax credit as an advance when they buy their first home. As the bill was initially passed, a tax credit would not put any cash in the buyer’s hands to help buy the home. It represented a cash incentive AFTER purchase in the form of a tax credit when filing taxes.
On Friday, May 29, 2009, HUD announced the change in the program.
As stated in the announcement:
WASHINGTON – Speaking to the National Association of Home Builders Spring Board of Directors Meeting, U.S. Housing and Urban Development Secretary Shaun Donovan today announced that the Federal Housing Administration (FHA) will allow homebuyers to apply the Obama Administration’s new $8,000 first-time homebuyer tax credit toward the purchase costs of a FHA-insured home. Donovan said that today’s action will help stabilize the nation’s housing market by stimulating home sales across the country.
The American Recovery and Reinvestment Act of 2009 offers homebuyers a tax credit of up to $8,000 for purchasing their first home. Families can only access this credit after filing their tax returns with the IRS. Today’s announcement details FHA’s rules allowing state Housing Finance Agencies and certain non-profits to “monetize” up to the full amount of the tax credit (depending on the amount of the mortgage) so that borrowers can immediately apply the funds toward their down payments. Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate.
Families will now be able to apply their anticipated tax credit toward their home purchase right away.
Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 percent downpayment on the purchase of their home. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment. But, under the terms of today’s announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate. Buyers financing through state Housing Finance Agencies and certain non-profits will be able to use the tax credit for their downpayments via secondary financing provided by the HFA or non-profit. In addition to the borrower’s own cash investment, FHA allows parents, employers and other governmental entities to contribute towards the downpayment. Today’s action permits the first-time homebuyer’s anticipated tax credit under the Recovery Act to be applied toward the family’s home purchase right away. Unlike seller-funded down-payment assistance, which was a vehicle for abuse, this program will allow homebuyers to shop for the best home price and services using their anticipated tax credit.
Keep the following in mind about the Tax Credit and the advance:
- The tax credit advance loan cannot be used towards the mandatory 3.5% down payment.
- The tax credit advance loan may not exceed the anticipated tax credit due to the home buyer based on the computations of form IRS 5405.
- The borrower cannot have unsettled obligations with the IRS.
- The borrower will need to provide a copy of their tax refund and/or form IRS 5405.
- If the tax advance is in the form of a loan with payments, the borrower must qualify (for the new mortgage loan) with that payment included as a debt (unless the payments are deferred for at least 36 months).
The First Time Home Buyer Tax Credit can be claimed if:
- You purchased your “main home” after April 8, 2008 and before December 1, 2009.
- You (and your spouse, if married) did not own any other main home during the 3 year period ending on the date of purchase.
The IRS defines “main home” as the one you live in most of the time. It can be a house, houseboat, housetrailer, cooperative apartment, condominium, or other type of residence.
You cannot claim the tax credit if:
- Your modified adjusted gross income is $95,000 or more ($170,000 or more if married filed jointly).
- Your home financing comes from tax-exempt mortgage revenue bonds.
- You are a nonresident alien.
- You aquired your home by gift or inheritance.
- You acquired your home from a related person.
You must repay the tax credit if your home ceases to be your main home within the 36 month period beginning on the purchase date.
If you are interested in buying a home and you think this program can benefit you, give me a call.
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