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$8,000 First Time Home Buyer Tax Credit Can Now Be Used at Closing – But Not For Minimum Down Payment
29th May 2009
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:
- 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.
- 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.
- The home has to be for your primary residence. Second homes and investment properties don’t qualify.
- 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.
- 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.
- 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.
- This credit applies retroactively from January 1, 2009 to December 1, 2009.
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May 29th, 2009 at 9:05 pm
[...] News Sources wrote an interesting post today onHere’s a quick excerptExpectations 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 paymen [...]
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[...] Random Feed wrote an interesting post today onHere’s a quick excerptExpectations 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 paymen [...]
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The lenders in the wholesale market never allowed the credit to be used at closing. We hope that will change some day, but most likely it will not. Local banks will be the best option for the first time home buyers.
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August 3rd, 2009 at 8:15 am
Autos 1, Housing 0
There is a pent up demand by consumers to spend in America. This is evidenced by the overwhelming success of the “cash for clunkers” program, it’s been so successful that Congress is allocating more. On the other hand, the $8000 First-Time Homebuyers Tax Credit has been a yawner, due to the fact that HUD has added additional regulations that were not the intent of the Stimulus Bill.
The “clunker” program has accomplished exactly what Congress intended, reduce inventories, help the manufacturers, stimulate the local economies and inject cash into the local and state revenue shortfalls. It is refreshing to see this success without any additional Federal regulations or roadblocks.
The $8000 Tax Credit as it stands, benefits only the wealthy, those home buyers who have a wealthy family member who will lend the $8000 so they can buy a home, be eligible for the credit and repay the loan. What about average Americans who are approved for a FHA mortgage, but don’t have wealthy families to lend the $8000, where do they get the 3.5% required downpayment from? So far the Tax Credit has not reduced inventories, has not helped the local economies and has not added to the local and state revenue shortfalls to any extent, as the Stimulus Bill intended. HUD allows only State Housing Finance Agencies (HFA’s) (there are only 11 states offering this) to lend the 3.5% FHA required down payment against the Tax Credit. The problem is that only 11 states offer any help and all of these states have limited funds for their programs. Where are the Realtors (NAR) and the Builders (NAHB) in this issue, are their members satisfied with the lack of monetization of the Tax Credit for the majority of potential home buyers, the missed opportunities, I would think not? The President also is missing opportunities by the under utilization of the Tax Program.
Congress has put forward numerous Bills with regard to the $8000 Tax Credit, Sen. Isakson (R-GA) proposes raising the Credit to $15,000 and Rep. Johnson (D-TX) has a Bill extending the Tax Credit, to name just two. Wouldn’t the average American First-Time Homebuyer be better served if Congress enacts legislation that will specifically authorize and require HUD to recognize that a Tax Credit is an asset? Furthermore that this asset is either eligible to secure a loan under FHA’s existing collateralized loan guidelines or be eligible for purchase by nonprofit agencies in order to monetize the Tax Credit and allow these funds to be used for the required 3.5% down payment. It should be noted that these nonprofits are not parties to the real estate transaction and do not benefit from the transaction.