The tax man giveth and the tax man taketh away...

Just want to give our readers this quick update from Mortgagee Letter 2009-15 which establishes guidelines for use of the first-time home buyer tax credit as settlement funds.

The details haven't been fully revealed just yet so there is still a lot of guessing and speculating going on within the industry. We are hoping to have a clear picture within the next week or two but in the meantime here are a few things that we do know.

• The IRS tax credit refund can be made only to the taxpayer and not a third party.
• Government agencies may offer tax credit advances with second liens.
• The buyer cannot get cash back through the tax credit advance.
• The 2nd lien may not exceed the down payment, closing costs, and prepaid expenses.
• The 2nd lien may be soft or require payments.
• Payments on 2nd liens must be included in ratios unless deferred for at least 36 months.
• Balloon payments on 2nd liens may not be before 10 years.
• FHA approved lenders and FHA approved non-profits may purchase the tax credit.
• Tax credit purchaser may not charge more than 2.5% of the tax credit as a fee.

And then there's this little item that every potential borrower against the funds needs to be aware of...

• IRS may deduct from the tax credit: unpaid student loans, tax liens and garnishments.

We just want to keep you informed as new info comes available to us. Don't hesitate to call if you have any questions whatsoever!