The American Recovery and Reinvestment Act of 2009 (Recovery Act) provides for as much as an $8000 tax credit to qualified first-time homebuyers. FHA now supports the use of this tax credit to help with a Buyerâ€™s â€œdown paymentâ€. In reality, as I currently understand, the $8K cannot be used for a down payment; but rather, only to pay for settlement costs. HUD Mortgagee Letter 2009-15 provides the guidelines for using the $8K tax credit (see link below).
Here is the â€œtop 10â€ list of things you need to know about the FHAâ€™s view on this subject:
1. The IRS tax credit refund can be made only to the taxpayer and not a third party.
2. Government agencies may offer tax credit advances with second liens.
3. The buyer cannot get cash back through the tax credit advance.
4. The 2nd lien may not exceed the down payment, closing costs, and prepaid expenses.
5. The 2nd lien may be "soft" or require payments.
6. Payments on 2nd liens must be included in ratios unless deferred for at least 36 months.
7. Balloon payments on 2nd liens may not be before 10 years.
8. FHA approved lenders and FHA approved non-profits may purchase the tax credit.
9. Tax credit purchaser may not charge more than 2.5% of the tax credit as a fee.
10. IRS may deduct unpaid student loans, tax liens and garnishments from the tax credit.
The problem with most of the home buyer incentives is that in order to qualify for financing your income level will exceed the guidelines of both the Federal and State buyer incentives. The income limit is $75000 for singles and $150000 for marrieds.
Last month the average home price in Glendale was$492.000, so for many home buyers by the time the qualify for a home purchase, their income will exceed the income cap for the incentives.
However, if you are a first time home buyer (meaning you have not owned a personal residence in the last three years), then the TAX benefits would more than justify purchasing a primary residence.
HUD has made this a little tough.
You can, however, get a gift for the down payment and when you get the $8000 back by re-filing your 08 taxes, you can reverse gift it.