August, 2009
Using the First Time Homebuyers Tax Credit as a Down Payment
By now we have all heard that first time home buyers may qualify for a tax credit of up to $8,000.00. We have also learned that there is a possibility of using that credit as part of their down payment. This is great news for our industry but the question remains... how? How does one use their first time home buyers tax credit as part of their down payment?
Once a person has figured out that they qualify and would like to use their credit as part of their down payment, there are a few things they should know.
The first time home buyer would need to apply for their loan at an FHA approved lender. The approved mortgagee may purchase the tax credit anticipated by the home buyer which means they advance the credit to the home buyer as a second lien or bridge loan. This lending institution will take the appropriate measures to insure that there are no outstanding debts and will have the borrower sign a certification that the credit is not subject to offset other financial obligations (such as student loans). They will also require the homebuyer to provide the IRS form 5405- "First Time Homebuyer Credit". The second lien can not exceed the amount needed for the down payment, closing cost and prepaid expenses. Secondary financing may be "soft" or require a monthly repayment.
The buyer needs to be aware that the credit may NOT be used as part of the 3.5% minimum down payment. However, it can be used as addi-tional down payment, to cover other closing costs and to buy down the interest rate. Regardless if the homebuyer is using the tax credit as part of their down payment or not, they must close on their property PRIOR to December 1st 2009 in order to qualify.
To read a copy of the "Mortgagee Letter 2009-15" put out by the US Department of Housing and Urban Development (HUD) go to :
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm
Click on "Using First-Time Homebuyer Tax Credits for the Downpayment"
