Expectations mean a lot. HUD Secretary Shaun Donovan released more details today on the eagerly waited for plan on how first time home buyers will be able to use the $8,000 tax credit, but this is looking like a big disappointment. Donovan made big news a couple of weeks back when he announced (pre-maturely) that FHA would allow the credit to be monetized and turned into a second mortgage so that first time home buyers could use it as part of their down payment. Saving up for the down payment has always been the biggest hurdle to buying a new home. The real estate community (it was first announced in front of a Realtor’s convention) went nuts when this was first announced. If other wise qualified home buyers could use this tax credit as part of their down payment, it would be a big shot in the arm for the purchase market in general. The next day HUD started walking back some of the promises. FHA put up a mortgagee letter stating how the program was intended to work, and then took it down the same day. The details that were supposed to come out within the week, didn’t come out. Now, a few weeks later, the program is being rolled out again, but the most important part is missing. The $8,000 tax credit will be allowed for use as part of an FHA mortgage (as a 2nd mortgage secured against the tax credit – details to come) but they can only use it to pay for closing costs or to increase their down payment after they have already invested the minimum 3.5%.

This is a nice enough feature, but not anything that will bring extra buyers into the market. Those who have the 3.5% down payment already saved are in a good position to buy already. It is common now for buyers to negotiate for the sellers to pay their closing costs as part of the contract, so a first time buyer can often buy with just enough of their own money to pay for the down payment. With FHA it is acceptable to buy with the entire down payment coming from a gift from a relative and it’s common knowledge that many of these gifts are expected to be paid back at some point. My guess is that a lot more first time home buyers will tap into the parental bank account to buy their first home, and then pay the money back after filing an adjusted tax return so they can get the return back a few weeks after closing. So the end result is they are still buying with no money down, but this way the bridge loan is kept in the family. But if you don’t have a rich uncle, and mom and dad are tapped out, you are still on the sidelines.

The idea behind this program was to get more new buyers in the market. The way this is coming out, that’s not going to happen. The First Time Home Buyer Credit is a great deal and it is helping a lot of new buyers take the plunge and get into home ownership now instead of waiting. But in order for it to work you will need to have your down payment saved up, or know someone who is welling to gift you the money.

Here is how the first time home buyer tax credit works:

1. The credit is for 10% of the purchase price up to a maximum of $8,000. This means that if your purchase is $80,000 or more, the credit will be $8,000.
2. It is available only for first time home buyers. By their definition, a first time home buyer is anyone who hasn’t owned a home in the last 3 years.
3. The home has to be for your primary residence. Second homes and investment properties don’t qualify.
4. This is a true tax credit. The original bill released last year gave buyers a credit the first year, but they had to pay it back over the next 15 years ($500 per year). If they sold their home in that period they would have been liable for the amount of the credit they hadn’t paid back. This new version makes it a true credit as long as you stay in the home at least 3 years. If you sell before 3 years is up, you may need to pay the credit back.
5. If your tax liability is less than the $8,000 credit, you will get the difference as a check back to you. If you have already filed your taxes, you can file an amended tax return in order to take the tax credit this year and get the money back quickly.
6. Income caps apply. A single buyer qualifies as long as they earn up to $75,000 per year, and couples are maxed out at $150,000 per year.
7. This credit applies retroactively from January 1, 2009 to December 1, 2009.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States

Free Mortgage Quote:

Get Best Advice from illinois mortgage broker

Contact Your illinois mortgage company Today

Find the Maximum FHA Loan Amount in Your Area Here illinois FHA loans

Are you Looking for first time home buyers loan ? Find Free Tips and Advice here

How to update yourself with Current chicago mortgage rates ? The Answer is here.

Looking for mortgage chicago il

Chicago FHA loans

We Offers illinois home mortgage Loans with best mortgage rates