BUYER BEWARE of Tax Credit
The first time homebuyers tax credit of $8,000 has been approved by HUD for all FHA loans. But don't get too excited too quickly. If you get a chance to read the mortgagee letter, ML 2009-15, it states that you can't use this tax credit for the required down payment of 3.5%.
HUD originally put out mortgagee letter 2009-15 on May 12th, but was rescinded the next day. Please read about that here : $8,000 tax credit rescinded by HUD. For some reason, it was prematurely placed on HUD's web site, but apparently wasn't finalized. Now we have a new version and if not read correctly, you could be putting misinformation out there. So what does the new mortgagee letter state?
Here is the positive part about the tax credit. You can receive the first time homebuyers tax credit upfront, but not through the IRS. This would be illegal. Please read : It's illegal to receive your tax credit before you close on your home. Buyers - BEWARE, please read that, because too many people are saying that you can get the money directly from the IRS prior to closing. The IRS & HUD both say no!!!
So how can you receive this upfront? It can be given to you as a second or a silent second from any Federal, State, or local agencies, and any FHA mortgagee or any FHA approved non-profit organization. People, in layman's terms, this is already acceptable by HUD's standards, except for the lender that is now able to give the monies upfront in a form of a 2nd mortgage. Another terminology is that this can be an advance loan from any of the entities mentioned above.
Summary : Essentially, this means that the entities mentioned above, are purchasing this tax credit on your behalf and giving it back to you. The short version of this is that you can use some of the money from the $8,000 Tax Credit as your down payment, but after you put down the first 3.5% of that down payment. Meaning, you have to come up with 3.5% of your own money still. With FHA loans, it can still be a gift from a relative/family member. It also can come from non-profit or government agencies to be used as your initial down payment, but not used through the tax credit. Overall, the tax credit that is advanced, can be used for all closing costs. But you can't receive monies back at closing.
And again, keeping in mind, it's illegal to receive this tax credit upfront directly from the IRS. There is more verbiage in the mortgagee letter 2009-15 , but the main point is that you have to have 3.5% of the downpayment yourself, before you can use the tax credit that would be 'loaned' to you.
THOUGHTS??? - Well, in all honesty, how does this truly help? What is the gov't thinking here? As a buyer, I would still need the initial 3.5% of my monies for the down payment. Again, needing money to buy. I know some of you are for this fact, that buyers should have skin in the game. But keep in mind, this was not the true demise to our foreclosure mess. We need to sell houses to keep this economy going. Just my opinions and food for thought. thanks
My Series on the First time homebuyers $8,000 tax credit - Everything you need to now, from start to finish - What's allowed and what's not allowed :
- The $8,000 tax credit for first time home buyers - The basics - What to know about it - Understanding what the tax credit is all about.
- Use a 6 month gift from a relative to buy a home, thanks to the Tax Credit - How to get creative in using the tax credit and some FHA mortgage guidelines in helping you use this tax credit to your advantage.
- Using First-Time Homebuyer Tax Credits for the Downpayment - It's GONE !!!! - The story of the $8,000 tax credit - The bottom line, you can't use the actual tax credit as your downpayment.. for your downpayment, unless you get it from other sources prior to buying the house and receiving the tax credit.
- FRAUD ALERT - Advice on the $8,000 first time homebuyers Tax Credit - Do you chance it??? - This explains to you that it's fraud if you directly obtain the money from the IRS before you actually purchase the house. Even HUD and many lenders/investors acknowledge this also.
- The $8,000 tax credit for First Time Homebuyers - How & when to get it legally - So how can the tax credit be received legally for your downpayment? Just be careful of those that promise other ways not mentioned. I talk about what is illegal in the previous blog above. Please click the link.
- The First time homebuyer $8,000 tax credit has been amended - May 29th, 2009 - Buyer, beware !!! You still need 3.5% of your own money for the down payment. It can't come way of an upfront loan through the tax credit.
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Experience & Knowledge at its BEST !!!
For more information on FHA loans, please go to this link. The FHA Expert
For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!
Copyright © 2009 by Jeff Belonger