For those that are confused, as of 5/12/09 the FHA announced that the $8,000 tax credit CAN be used for a down payment. Any taxes you owe will be deducted.

Woops. I stand corrected. New changes just went into effect this week.

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/fi…

II. FHAGuidance

The Tax Credit: SecondaryFinancing:

Entities that can offer tax credit advances with second liens.

· Federal, state, and local governmental agenciesand nonprofit instrumentalities of government.

· FHA-approved nonprofits.

Additional information about these entities:

· Government agencies and instrumentalities ofgovernment are described in handbook HUD-4155.1 REV-5, paragraphs 1-13 A and B.

· FHA-approvednonprofits can be found, per each Homeownership Center jurisdiction, at: http://www.hud.gov/offices/hsg/sfh/np/np_hoc.cfm

How the secondary financing works:

· The tax credit advance, when combined with theFHA-insured first mortgage may not result in cash back to the borrower. The second lien may not exceed the totalneeded for the downpayment, closing costs and prepaid expenses.

· The tax credit advance must provide that if theborrower does not repay the amount borrowed by the designated deadline, thatprincipal and interest payments begin automatically.

· If payments on the tax credit advance arerequired, they must be included in qualifying the borrower and, when combinedwith the first mortgage, cannot exceed the borrower’s reasonable ability topay.

· If payments on the tax credit are deferred, thedeferment must be for a minimum of 36 months in order for the payment to not beincluded in the qualifying ratios.

· The tax credit advance second mortgage must not provide for a balloon payment beforeten years.

The Tax Credit: Short-Term Loan:

Entities that can offer the tax credit advance withshort-term loans:

· Federal, state, and local governmental agenciesand nonprofit instrumentalities of government, FHA-approved nonprofits, andFHA-approved mortgagees may provide short-term or “bridge loans” secured only bythe anticipated tax credit due the homebuyer as collateral.

How the short-term tax credit advance loan works:

The amount that may be borrowed in this manner maynot exceed the anticipated tax credit due the homebuyer based on thecomputations of form IRS 5405.

Fees and charges for the tax credit advance loanare not to exceed a nominal amount necessary for preparing and administeringthe loan.

If you have any questions regarding this mortgagee letter,please call 1-800-CALL-FHA (1-800-225-5342).

I called the IRS, and a representative stated that I could not use the credit for a downpayment because in order to get the credit, I have to sell it first (not simoutaneously). I heard something is in the works to allow buyers to use the credit as a downpayment, but so far, no luck. http://www.irs.gov/newsroom/article/0,,id=206293,00.html

Any taxes you owe to the IRS will be deducted from the $8,000 credit. For example, I just amended my tax return to get the credit. I owed $485 on April 15th. So, I will get a $7, 515 check in 2-3 months.

Helene,
Yes, any taxes you owe would be deducted. The remainder could go towards the down payment.