Hud announced a decision to allow consumers to use the $8,000 first-time homebuyer tax credit for downpayment and closing costs for FHA loans!
The measure announced on May 13, 2009 by HUD Secretary Shaun Donovan would allow FHA approved lenders; federal, state and local government agencies; and FHA approved non-profit organizations to supply home buyers short-term or "bridge loans" up to the amount of the first-time homebuyer tax credit.
UPDATE 5/29/09: HUD re-announced this program today after temporarily suspending it for two weeks.
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. To read the FHA's new mortgagee letter, visit HUD's website.
Longer term loans secured by second lines can also be used by government agencies and FHA approved non-profit organizations to facilitate home sales. Several state housing finance agencies have introduced "jump start" programs and many others are still considering the same.
More information about these programs can be found on the National Council of State Housing Agencies Web site at www.ncsha.org/section.cfm/3/34/2920.
Previously, the home buyer would have been unable to access the tax credit until they filed their next annual tax return or an amended 2008 tax return and received the refund from the IRS.
How It Works:
- Only FHA loans qualify
- You must come up with a 3.5% downpayment first and the tax credit can be used beyond the 3.5%.
- The Bridge loan cannot be more than down payment + closing costs + pre-paid expenses.
- You cannot get any cash back at closing.
- There is a deadline to pay this money back.
- If the Bridge loan will have monthly payments, they will be calculated for qualifying.
- If the payments will be deferred, it must be for at least 36 months.
The next step is to see how FHA-approved lenders use HUD’s new guidelines to actually monetize the tax credit for first-time home buyers and structure the payback provisions of the loans. NAHB encourages lenders to act promptly to put these provisions into place.
To qualify for the tax credit, first-time home buyers must actually close on their home purchase by Dec. 1, 2009. Buyers can take the credit on their 2008 or 2009 income tax return.
According to estimates by the National Association of Home Builders, the Administration's homebuyer tax credit will stimulate 160,000 home sales across the nation - 101,000 of which will be first-time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first-time buyer purchased their home. Given FHA's current market share, it's estimated that thousands of families will be able to purchase a home by allowing the anticipated tax credit to be applied toward their purchase together with an FHA-insured mortgage.
Homebuyers should beware of mortgage scams and carefully compare benefits and costs when seeking out tax credit monetization services. Programs will vary from organization to organization and borrowers should consider whether the services make sense for them, as well as what company offers the most suitable and affordable option.
For every FHA borrower who is assisted through the tax credit program, FHA will collect the name and employer identification number of the organization providing the service as well as associated fees and charges. FHA will use this information to track the business closely and will refer any questionable practices to the appropriate regulatory agencies, as necessary.
Originally posted Friday, May 15, 2009, Updated May 29, 2009
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