Marti Greeley

HUD: Tax Credit Can Be Used on Closing Costs
FHA-approved lenders received the go-ahead to develop bridge-loan products that enable first-time buyers to use the benefits of the federal tax credit upfront, according to eagerly awaited guidance from the U.S. Department of Housing and Urban Development on so-called home buyer tax credit loans that was released today.

Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent.

The loans can't be used to cover the minimum 3.5 percent, senior HUD officials told reporters on a conference call Friday morning.

Thus, buyers applying for FHA-backed financing with an FHA-approved lender that offers a bridge-loan program can get a bridge loan to bring down the upfront costs of buying a home significantly but would still have to come up with the minimum 3.5 percent downpayment.

There remain many sources of assistance for buyers needing help with the 3.5 percent downpayment, including many state and local government instrumentalities and nonprofit lenders.

In addition, some state housing finance agencies have developed their own tax credit bridge loan programs, so buyers in states whose HFAs offer such programs can monetize the tax credit upfront to cover all or part of their downpayment. These programs are separate from what HUD announced today.

The first-time homebuyer tax credit was enacted last year--and improved upon earlier this year--to help encourage households to enter the housing market while interest rates are low and affordability is high. The credit is worth up to $8,000 and is available to households that haven't owned a home in at least three years. The credit does not have to be repaid, and is fully reimbursable, so households can get their credit returned to them in the form of a payment.

The Treasury Department has moved at record speed to implement one piece of the new

American Recovery and Reinvestment Act of 2009 Act aka the stimulus act.

The Department and the Internal Revenue Service which will manage it announced on

Wednesday, February 25, that forms and regulations are already in place for homebuyers

who wish to claim the first-time credit enabled under the act.

The credit is available to homebuyers who purchase a home before December 1 of this

year. In an effort to make the effects of the credit felt quickly in the economy, homebuyers

can claim the credit either on their 2009 tax return or immediately on the 2008 return due in

April.

The tax credit represents 10 percent of the purchase price of a home up to a maximum of

$8,000 or $4,000 for married taxpayers filing separate returns. The $7,500 credit that was

authorized under earlier legislation last year was actually a 15 year loan; the new tax credit

does not have to be repaid by the homeowner under ordinary circumstances.

The credit does have to be repaid if the homeowner sells the home in less than 36 months or

if the home ceases to be his principal residence during that time.

For the purpose of this credit, a first time homeowner is defined as one who has not owned a

home for the 36 months ending on the date of purchase.

The credit is available to taxpayers with adjusted gross incomes up to $75,000 or $150,000

for married taxpayers filing jointly. Above those income levels the credit is phased out

gradually.

Homeowners who purchased a house between April 8 and December 31, 2008 are not

eligible for the new credit. They are covered by the earlier legislation and can claim the

$7,500 repayable credit.

Treasury Secretary Tim Geithner said in a press release from his department, "The

expansion of the first-time home buyer tax break as part of the President's recovery agenda

gives money to taxpayers when they need it most, while also targeting an important group of

buyers. We view our economic recovery plan, our financial stability plan, and now this

homeowner affordability plan as three legs of the same stool - an integrated whole that

represents our immediate response to the current crisis."

Forms and instructions for claiming the credit on 2008 tax returns are available at

http://www.irs.gov

There has been many rumors out there regrding the use of the First Time Home Buyer Tax Credit as down payment on the new loan...please read below what the actual ruling is.

HUD: Tax Credit Can Be Used on Closing Costs
FHA-approved lenders received the go-ahead to develop bridge-loan products that enable first-time buyers to use the benefits of the federal tax credit upfront, according to eagerly awaited guidance from the U.S. Department of Housing and Urban Development on so-called home buyer tax credit loans that was released today.

Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent.

The loans can't be used to cover the minimum 3.5 percent, senior HUD officials told reporters on a conference call Friday morning.

Thus, buyers applying for FHA-backed financing with an FHA-approved lender that offers a bridge-loan program can get a bridge loan to bring down the upfront costs of buying a home significantly but would still have to come up with the minimum 3.5 percent downpayment.

There remain many sources of assistance for buyers needing help with the 3.5 percent downpayment, including many state and local government instrumentalities and nonprofit lenders.

In addition, some state housing finance agencies have developed their own tax credit bridge loan programs, so buyers in states whose HFAs offer such programs can monetize the tax credit upfront to cover all or part of their downpayment. These programs are separate from what HUD announced today.

The first-time homebuyer tax credit was enacted last year--and improved upon earlier this year--to help encourage households to enter the housing market while interest rates are low and affordability is high. The credit is worth up to $8,000 and is available to households that haven't owned a home in at least three years. The credit does not have to be repaid, and is fully reimbursable, so households can get their credit returned to them in the form of a payment.

Please feel free to contact me regarding this information and I will be happy to discuss the ruling.

Many Investors are changing the rules on FHA Streamline Refinances. Before the rules were there was only a mortgage credit report pulled...this would allow Borrowers who may have been late on other accounts to still have the opportunity to refinance their home loan with out the risk of being denied due to credit. As long as their mortgage was paid on time they could proceed. Now many Investors are starting to require a 3-Bureau credit report to be pulled. They are also requiring 620 FICO regardless of the FHA rules.

This could be a huge issue for those people who have experienced credit problems due to the economy.