J. Robb, Home Buyer in Cincinnati, OH

Would Texas real estate law allow a land contract property purchase with the $8K tax credit as down payment?

Asked by J. Robb, Cincinnati, OH Thu Mar 4, 2010

I have a property that I'd like to sell to the current tenants I suspect they don't have down payment money, so the 8K from stimulus funds could meet that requirement. But, I don't live in Texas, so I don't know if the law there permits such a sale. Knowledgeable Texans please advice.

Help the community by answering this question:


Seek the advice of counsel prior to selling via a land contract. The laws in Texas were changed a couple years ago which made land contracts extremely burdensome on the seller, with significant penalties for not following these laws to their letter. I suspect most any real estate attorney practicing in Texas will advise you to steer clear of a lease/option or a land contract. You may want to consider just owner financing instead.
Web Reference: http://www.phgbrokers.com
2 votes Thank Flag Link Thu Mar 4, 2010
This is complicated.

First, the tax credit applies to the Federal taxes the buyers file. They get the money after they close on the home purchase and then file their Federal return. The credit is 10% up to $8,000 for a first-time home-buyer. I don't see how you can use the future tax credit that the buyer will get for paying closing costs on the purchase they have to make to get the credit in the first place.

Second, as was mentioned a contract which is executory for more than 6 months in Texas requires the seller to make disclosures to the contracting buyer on a regular basis or else could forfeit all monies received in the executory purchase. Very dangerous not to follow the law to the letter.

Third, you may be better off with seller financing, if the buyer is trustworthy enough to wait for the tax credit to appear in his bank. The closing costs would have to be paid to get the title into their names, but if you can wait a while for the big chunk and take monthly payments in the meantime, this has less risk than an executory contract but all the advantages of being the mortgage lender. Talk to an attorney about this before deciding what makes sense.
3 votes Thank Flag Link Fri Mar 5, 2010
This is from the IRS website:

Q. Can a taxpayer claim the first-time homebuyer credit if the purchase is pursuant to a seller financing arrangement (for example, a contract for deed, installment land sale contract, or long-term land contract), and the seller retains legal title to secure the taxpayer's payment obligations?

A. If the taxpayer obtains the "benefits and burdens" of ownership of a residence in a seller financing arrangement, then the taxpayer can claim the credit even though the seller retains legal title. Factors that indicate that a taxpayer has the benefits and burdens of ownership include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property. (7/2/09)

The trick is making sure the buyer pays you after they get their Tax Rebate. Some County Affordable Housing offices may have a program to "advance" the $8k to the buyer. Google "Affordable housing" for the county where your propety is located to see if they have the program.
1 vote Thank Flag Link Thu Mar 4, 2010
The 8K tax credit cannot be used as a down payment - since it is not realized until AFTER you purchase a home.

This is a credit against taxes owed to the Federal Government.

So - if you do taxes and find you owe the feds 10K - you would apply the 8K and only need to cut a check for 2K.

If you pay in 10K in taxes and owe 10K - the 8K tax credit will get you an $8,000 refund.
0 votes Thank Flag Link Thu Mar 4, 2010
Search Advice
Ask our community a question
Email me when…

Learn more

Copyright © 2015 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer