Some first-time homebuyers won’t have to wait until next year to enjoy Uncle Sam’s $8,000 gift. Although this is a tax credit, buyers who qualify may use it as a down payment or toward the closing costs when they buy a home.
When the program was first introduced, the rule was that first time homebuyers were required to approach the purchase with at least 3.5% for a down payment already in the bank. The rule change came about as an attempt to boost sales in communities that have an oversupply of housing available.
While this sounds like a bonus for some homebuyers, it is a bit complicated. The first rule, after making sure you qualify for the program, is that you must be getting a mortgage insured by the Federal Housing Administration.
Once you’ve located that lender, decide which of the two options best fits your needs.
The first option is to obtain a bridge loan. This is secondary financing that places a second lien on your home and is due on a date that coincides with receiving your income tax refund for the 2009 tax year. The loan is issued by a government agency or nonprofit organization.
If not paid by the deadline, these bridge loans convert to 30 year mortgages, with interest, and remain in second position on your home until paid in full.
The other option is to sell your tax credit to a FHA approved lender, a nonprofit organization, or a government agency such as a State or Local Housing Agency. Of course restrictions do apply.
For instance, you may not sell your credit to use for any part of the required 3.5% down payment. You may, however, use it to increase your down payment. You may be ineligible if you owe back taxes or student loans – or if your wages are being garnished.
With either option you are not allowed to take cash back. So if new furniture is your goal, you’ll have to wait until you receive your tax refund. All monies received from the bridge loan or from selling your credit must go directly toward the purchase of your new home.
If you’ve decided that you want the money now rather than next Spring, the next hurdle is to find a FHA approved lender near you. Housing agencies in 13 states are now offering these services and more are expected to join in. Local agencies are eligible to participate, but few have the financial resources. That leaves private lenders, but not all qualify. Those private lenders must have been approved by FHA.
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