One of the most common questions that I have had in the last few weeks is “I heard that you can now use the 8000 tax credit for your down payment, is this true?”
And my official answer to that question has been “Wait and see. Nothing is official yet.”
The wait is now over.
On Friday, HUD issued a Mortgagee Letter that outlined the rules regarding “using the 8000 tax credit for your down payment” — which has also been referred to as “monetizing the tax credit”.
Across the US, experts are predicting that the 8000 tax credit will spur up to 160,000 new home sales — and more than just a few of those 160,000 people will be right here in Arizona. Now, with the new rules that have been established, you no longer have to wait to use the 8000 tax credit for new home buyers for closing costs or part of a down payment, there is a process to use it immediately.
According to Reuters:
The National Association of Home Builders estimates that the $8,000 first-time homebuyer credit will stimulate 160,000 home sales across the United States — 101,000 purchases from first-time buyers and another 59,000 purchases by existing homeowners who sold dwellings to first-time buyers.
According to CNN Money:
On Friday, the U.S. Department of Housing and Urban Development (HUD) announced that first-time homebuyers using FHA-approved lenders can now get an advance on the $8,000 tax credit created by the stimulus package and apply it toward their down payments or closing costs.
“We believe this is a real win for everyone,” said HUD secretary Shaun Donovan in a speech before the National Association of Homebuilders (NAHB). “Families will now be able to apply their anticipated tax credit toward their home purchase right away. What we’re doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing.”
Some of the more popular questions from people here in Georgia about the monetization of the tax credit include “How much does it cost” and “can I use the tax credit for my down payment?” Here are the answers to those two popular questions as well as some resources that you can use to get any other questions that you may have:
Can You Use The Tax Credit For Your Down Payment?
Yes, — but you cannot use the tax credit to cover the first 3.5% of your down payment, you must come up with that on your own or have it gifted to you from a blood relative.
Once you come up with the initial 3.5% down payment that is required by FHA, if you would like to use the 8000 tax credit to add to that down payment, that is allowed.
How Much Does It Cost To Get “Monetize” The Tax Credit?
In my opinion, HUD did a nice job of outlining a reasonable fee structure for people who wanted to monetize the tax credit. According to the Mortgagee Letter:
Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer. In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive. (Example: $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)
I am sure that there will still be plenty of questions about the tax credit – and the best way to get those questions answered is to speak with a loan officer at a FHA approved lender – they should be able to answer your questions.
Official Mortgagee Letter 2009-15
New Home Buyer 8000 Tax Credit Down Payment: Answers To Questions