A new twist to the nation's economic stimulus program may make it easier to turn an $8,000 tax credit into a first-time home.
Under a decision announced last week, the U.S. Department of Housing and Urban Development (HUD) will allow eligible first-time homebuyers to use the tax credit authorized under The American Recovery and Reinvestment Act of 2009 during the actual home purchasing process. This will help to eliminate a major stumbling block for many homebuyers - coming up with the cash for a downpayment and closing costs.
As originally envisioned, the $8,000 credit would be available only after home buyers who purchase a home before next December 1 actually owned the home and filed their tax returns. They would then have to wait for the resulting refund. The credit could be claimed on either 2008 or the 2009 return but would still be available only retroactively.
The HUD policy change will permit FHA-approved lenders such as federal, state, and local government agencies and non-profit organizations to provide loans against the potential tax returns at closing to qualified buyers who are financing the purchase through FHA guaranteed first mortgages.
So far, Housing Finance Agencies and other development agencies in
10 states have announced programs under the new HUD guidelines and it is expected that many more will follow suit.
Each participant is free to structure its program but there are some general similarities. Most take the form of a second mortgage and a payoff is expected when the tax return is received. In Colorado, for example, the loan can be for an amount of up to 3.5 percent of the first mortgage loan or $6,000 (whichever is less) and will carry a 0% interest rate until June 30, 2010. There is a $350 administrative fee for issuing the loan, but if the loan is paid by the June 30 date $250 of the fee will be applied toward the payoff. After that date the interest rate will rise to 8% and the loan will amortize over eight years.
In Idaho the loan can be for as much as $7,000 if it does not push the indebtedness over 100 percent loan to value. To qualify the first-time buyer must have a FICO score of at least 640 and the debt ratio cannot exceed 45 percent. A loan from the Idaho program has a 3 percent interest rate.
A list of participating states and information on the program specifics in each state are available on the website for the National Council of State Housing Agencies at www.ncsha.org (click on "HFA First Time Homebuyer Tax Credit Loan Program.)
