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HUD Clarifies $8,000 Homebuyer Tax Credit Plan, Sort Of
After a bit of a false start a couple weeks ago, the Department of Housing and Urban Development has figured out how to monetize the $8,000 first-time homebuyer tax credit for FHA-insured loans and allow its use in advance of filing a tax return.
Unfortunately, there’s still some minutiae to navigate.
From the HUD press release:
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.
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. [Emphases mine.]
The National Association of Home Builders (NAHB) estimates the Administration’s homebuyer tax credit will stimulate 160,000 home sales across the nation – over 60% of which will be first-time buyers who will receive the credit. The NAHB figures another nearly 60,000 existing homeowners will be able to buy another home because a first-time buyer purchased their home using this strategy.
Washington State loan originator Rhonda Porter hits the highlights on her mortgage blog. Jeff Belonger, at The FHA Expert, touches on the fine points of how the credit can can be applied.
Photo by Aaron Hockley, used under Creative Commons license. (No correlation to the article. I just like it.)
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