Jun 01
FHA’s announcement about $8,000 First Time Home Buyer Tax Credit - Don’t Be Misinformed
Posted: under Industry News.
Tags: 8000 tax credit, Miami Down Payment Assistance, Miami FHA, Miami FHA Loans, Miami FHA Mortgage, Miami First Time Home Buyer, Miami Real Estate
HUD will now allow the $8,000 first time home buyer tax credit to be used at the time of closing on all FHA loans. But don’t get too excited yet, as per Mortgage Letter 2009-15 it clearly states that when the $8,000 tax creditis obtained up front from one of the approved sources it cannot be used for the 3.5% minimum down payment requirement. The Mortgage Letter explains that when the credit is obtained at the time of closing by one of the approved sources it can only be used to pay closing cost, pre-paid items, discount points, or be used as an additional down payment.
In today’s market when buying Miami Real Estate the money for the closing cost and pre-paid itesm is not difficult to come by. Most cases have a seller contribution to cover these cost. FHA loans allow up to a 6% seller contribution that can be used for closing cost, pre-paids, and discount points to lower your interest rate. What is difficult is obtaining the 3.5% minimum required down payment. Below is a list of allowable sources that can be used to obtain the down payment.
- Saving and Checking accounts
- IRA, 401k, Stock & Bonds or any other investment account
- Gift funds from a family member or relative
- Proceeds from the sale of another home
- Sale of personal property
- Rent credit on a lease to purchase transaction
- Collateralized loan (i.e. taking out a loan on a free and clear car)
- Employer guarantee or assistance plan
FHA/ HUD will only allow the $8,000 tax credit to be provided by FHA approved non-profit organizations, Federal, State, and Local Government agencies. The IRS and HUD have clearly stated that it is illegal to obtain the funds in advance directly from the IRS if you have not already purchased a home and filed the addendum requesting your credit - Buyer’s Beware.
Summary: This means that the entities mentioned above can provide you with the $8,000 first time home buyer tax credit up front but this credit cannot be used for the minimum down payment of 3,5% required by the FHA, when the tax credit is received in advance it can be used to pay closing cost, pre-paid items, discount points, or for an additional down payment if the client has already contributed the minimum 3.5%. The minimum down payment can come from any of the down payment sources list above and needs to be properly documented. This program still has to be addressed by the lenders lending the money, just because HUD has given the green light does not obligate lenders to participate and/ or allow this form of funds to be used towards a transaction. In conclusion I believe that this is another attempt by the government to further stimulate the Real Estate market that will fail miserably because it will not give the help in the areas of need. You will still need to contribute a minimum of 3.5% down payment from one of the allowable sources above in order to purchase a property and the up-front tax credit will not be an allowable source to meet the minimum down payment requirements.
In today’s market Miami Home Buyers have a high interest in bank owned properties. The rumor has it that these type of sales offer the best deals, but is that true?