No matter what kind of home you buy — whether it is a foreclosure or not — whether it is along the light rail route or not — you may be eligible for a tax credit of up to $8000 if you are a first time home buyer.
Not long after the $8000 tax credit was announced, there were people trying to figure out how to “monetize” the tax credit; or, in other words – how to use some or all of the $8000 tax credit for closing costs rather than waiting for the IRS to issue the credit to you.
As of Friday, it became official mortgage news. HUD announced that people who were eligible for the $8000 tax credit could now “monetize” it and get the money fast from an FHA approved organization.
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.”
The $8000 tax credit is expected to help as many as 160,000 people buy a home in 2009 that may not have been able to without the credit – and monetizing the credit will probably increase those numbers slightly. While the 160,000 new home buyers is nationwide – there is no little doubt that a decent amount of those people will buy a home right here in Arizona.
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.
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?
The costs to monetize the 8000 tax credit are pretty reasonable because HUD has given specific guidance regarding any fees charged. 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.)
Most people still have at least one question about how the monetization of the 8000 tax credit works, so here are just a few more resources that are available to help you learn more. Also, be sure to contact a loan officer who works for an FHA approved lender – they will also be a great help.
Official Mortgagee Letter 2009-15
New Home Buyer 8000 Tax Credit Down Payment: Answers To Questions
