UPDATE 5/29/2009From USA Today, First Time Homebuyers can get short-term loans secured by their tax credit:
WASHINGTON - Thousands of first-time homebuyers will be able to get short-term loans so they can quickly make use of a new $8,000 tax credit.
The Federal Housing Administration on Friday released details of a plan in which borrowers who use FHA loans can receive the credit before they complete their taxes.
The FHA had no estimate of how many borrowers would qualify. But the agency, which backs about a quarter of new-home loans, is projected to guarantee about 2.2 million loans in the next budget year.
Borrowers can claim the credit by filing an amended 2008 tax return or can wait for their 2009 return.
The change "will present an enormous benefit for communities struggling to deal with an oversupply of housing," Housing Secretary Shaun Donovan said in a statement.
Borrowers will still have to come up with the FHA's required 3.5% down payment, unless they work through a state or local housing program. But officials say the money can still be used for closing costs or a larger down payment.
The tax credit was included in the economic stimulus package signed by President Obama in February.
I just found out at 4:00 PM on Thursday, May 14, 2009 that FHA has placed this on hold. Fortunately, I received a call from Robert Barnette, a Residential Mortgage Originator at Peoples First Bank in Tallahassee, who informed me of the retraction. He writes:
Upon receiving news of the statement made by Shaun Donovan, the secretary of the U.S. Department of Housing and Urban Development, I checked with FHA in regards to validity of his statements. Per a representative at FHA's helpline, any plans to allow the banks to "monetize" the $8000 first-time homebuyers tax credit in the form of a bridge loan has, for the time being, been placed on hold until the full details of this option can be reviewed by HUD and the IRS.
A concern about this option was raised because not all first-time homebuyers will be eligible for the full credit since the credit is based on how the buyer files his taxes for 2009. For example, if a buyer owes taxes back to the government at the end of the year, the amount they owe will be subtracted from the tax credit and they will receive the difference, which may not be enough to cover the bridge loan.
If HUD clears this option, FHA will make a formal announcement by issuing a mortgagee letter outlining the guidelines of the program.
The biggest challenge for most home buyers is coming up with the cash needed to make a down payment. The monthly payment is not usually the challenge, as that payment is no greater than a rent payment would be for a similar property. With this in mind, the Federal Housing Administration made a big decision and an announcement yesterday that will give first time home buyers some real help.
Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, on Tuesday said that the Federal Housing Administration (FHA) is going to permit its lenders to allow home buyers to use the $8,000 tax credit as a down payment. In a sense, the "no money down" days are back, except this time the home buyer will have equity in the property.
Tax Credit Can Be Used For Down Payment
The fact that FHA will allow this will make home ownership possible for a large number of people who just weren't able to raise the funds necessary to close on their desired property. Believe it or not, this will help the entire market, not just the first time home buyers or the lower end of the market.
Anything that helps remove the glut of homes on the market will be good for all home owners, even the ones that do not wish to sell. The key to seeing home appreciation again in Tallahassee is to reduce inventory to 6 months of supply or below. If you have been following the supply and demand of homes in Tallahassee, then you know anything that reduces supply is good!
How To Use The Tax Credit As A Down Payment To Buy A House
Donovan, speaking at a Real Estate Summit, said "We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment." In order to facilitate this, FHA's approved lenders will be permitted to "monetize" the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately as the time of purchase.
More Information And Resources About The First Time Homebuyer Tax Credit
- First Time Homebuyer Tax Credit Frequently Asked Questions
- Profile Of A First Time Homebuyer
- First Time Homebuyer Quick Facts Sheet
- Modifications To The First Time Home Buyer Tax Credit
- First Article on the First Time Homebuyer Tax Credit
- Second Article on the First Time Homebuyer Tax Credit
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Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.