Applying the First Time Home Buyer Tax Credit to Your Down Payment
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Earlier this year, Congress passed an economic stimulus bill that included generous tax breaks for those buying a home for the first time. The first time home buyer tax credit is a true tax credit, of up to $8,000, designed to reward those who are purchasing a home for the first time. Now, a program has been announced that is aimed at making it easier to using the first time home buyer credit. (Hat tip: Free From Broke.) The credit can now be used to go toward a down payment on a home, or for closing costs. A HUD news release mentions details about the FHA home loan program, and how the tax credit can be used in conjunction with it:
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.
This is a move that should help the housing market on its road to recovery. With more people able to use the first time home buyer tax credit now, to make a home purchase more feasible, it is likely that the housing market will pick up a bit.
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