Home > Blogs > Jeff Belonger > Mortgage Knowledge at its BEST!!!! (Jeff Belonger)

$8,000 First Time Homebuyer Tax Credit - Approved by FHA/HUD 5-29-09 - But buyer BEWARE !!!

By Jeff Belonger

Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

May 29, 2009 04:26 AM

Tax credit for first time homebuyers

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HUD originally put out mortgagee letter 2009-15 on May 12th, but was rescinded the next day. Please read about that here : $8,000 tax credit rescinded by HUD.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.

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages -

- Conventional Loans - 203 k loans -

- Mortgages -

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 !!!!

Re-Blog

Featured

Comments(109)

Comment

Show All Comments

Sort:

Mark Watterson

Salt Lake City, UT

Utah Real Estate

I find it and the comments very helpful and interesting.

I see this helping those with 3.5% down to make the decision to buy. It just doesn't go far to help those who less than 3.5% down.

I agree FHA "was not the true demise to our foreclosure mess". How could it be. Everyone was doing 80/20's to avoid the mortgage insurance, that is the safety net for the lenders.

Thank you for the great information.

May 31, 2009 04:29 AM

Richard Dolbeare

Inactive - Wailuku, HI

Living the Hawaii Lifestyle

Thanks Jeff. I continue to read posts on this topic to try to sort through all the ocnfusion out there. Yours is the 2nd to state the same terms so I'm feeling more confident now.

May 31, 2009 05:22 AM

Mike Henderson

Your complete source for buying HUD homes - Littleton, CO

HUD Home Hub - 303-949-5848

Hopefully this will go through a lot smoother than the last time.

May 31, 2009 05:28 AM

Anonymous

Todd

Kudos for you for hitting the street with this and getting the nuances of the deal out to the public in a timely manner. As all things empowered by the "administration", this one, too, will go through it's interpretations and transmutations... depending on who is doing the reading and executing.

One point, though, and maybe I'm missing something plain in MY interpretation.. the Mortgagee Letter specifically states a list of entities who cannot put money in peoples hands to use as the required 3.5% down payment.. seems to be the major rub of your readers. As I see it, this list did not include the government agencies. They are not in a postition to be construed as someone who would "benefit from the transaction".. so isn't this the part of the program we are all waiting for? A state or regional program taht advance loans the money to use as down payment? The Letter doesn't seem to preclude this to me..

Am I missing something?

May 31, 2009 05:58 AM

#94

Jim Little

Ken Meade Realty - Sun City, AZ

Your Sun City Arizona Realtor

Thanks for this series Jeff. I posted links to it from my AR and personal sites, after all, why re-invent the wheel, especially when someone more qualified has done so.

May 31, 2009 07:23 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

JOSH..... . I agree with you 110%... sure, it can help pay to buy the rate down, or if you couldn't get seller help. But we are talking about the minority. The majority in my opinion would be those that don't have the 3.5% down payment.. or who might have 1% or 2%, but not the whole down payment. And many of these people would be viable buyers, and maybe help pick up the economy... and get many foreclosures off the market. thanks

PAUL..... I think many of us will agree that this will help some, but that we need to focus on those that don't have the down payment. And some of us will agree about not having skin in the game would be the problem. I would rather get the buyer their 3.5% down payment from a source than do a 80/20, to where your total payment would be higher because of that 2nd mortgage rate in today's market. thanks

TOM..... I agree and thanks for your support. And thanks for reblogging this a few days ago.

JO..... don't get me wrong, there was a slight stimulus about this. It did get a few off the fence or help. A few is better than nothing. But as you, I am looking at this from the larger perspective. It won't help the masses as the 'blind' gov't thinks it would. thanks

LORI..... yes, some states have the bond moneys and can supply a second to help with the down payment.. that is legal by HUD's guidelines. Or even assistance, as in monies from non-profits to be used for down payment or closing costs. But not every state has this and I am extremely disappointed that the gov't & HUD didn't think this threw. Hell, the tax credit has been out since like May of 2008. It's not May 2009 and we still can't get this right... that is my opinion and .02. thanks

KEN aka Novation mortgage...... I agree, those that are even part of real estate, such as the NAR, should sometimes just back off and stop trying to be out there, FIRST, and in front of the public. They and HUD have stuck their foot in their mouth on several occasions. Misinformation just scares more people later on. And even if not, when put online, you might never get to read about the correct information, just the bad. thanks

May 31, 2009 07:36 AM

Michael Barrow

Keller Williams Realty - San Diego Metro - San Diego, CA

Realtor, San Diego CA Real Estate

Thanks Jeff! This was getting pretty confusing...Too many people were jumping the gun with the information (mainly NAR).

May 31, 2009 09:28 AM

Gene Riemenschneider

Home Point Real Estate - Brentwood, CA

Turning Houses into Homes

Your are correct in that it was not the low down payments that started this mess, a big part of it was the short term intro payments and stated income loans.

May 31, 2009 10:45 AM

Marian Gregor-Ann

Keller Williams - Ann Arbor, MI

Arbor area Real Estate

Hi Jeff, So many comments, so little time! I actually poured over all these comments. The tax credit is better than, well nothing. I have 5 clients who will soon get their rebates. They are all pretty excited about that!

May 31, 2009 04:20 PM

Fran Gatti

RE/MAX Integrity - Medford, OR

Managing Principal Broker - RE/MAX Integrity

Jeff,

The contradicting information on the tax credit is staggering. Thanks for the up-date.

May 31, 2009 05:15 PM

Sarah Schneider

Prudential Fox & Roach Realtors - Marple Township, PA

Jeff, PLease walk us through a scenario, step by step by step exactly so we see hbow the process works. I , too am still confused, as are many other people. PLease take this all part and put it back together again, in a numbered, step by step process so we can all see how the complete transaction works.

Thanks! You rock!

Sarah

Jun 01, 2009 03:20 AM

Bob Mori

RE/MAX Right Choice - Trumbull, CT

CNNMoney via the following link, http://money.cnn.com/2009/05/29/real_estate/tax_credit_as_downpayment/index.htm?postversion=2009060109 says that the $8,000 at closing can be used for downpayment assistance. Wish all parties could get on the same page.

Jun 01, 2009 06:42 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Everyone, I am still trying to get back to all the comments above. But I wanted to clarify something that Bob Mori mentioned above.

BOB MORI...... . thanks for the link. I did read that article just now, yet I am confused on what you are trying to say. In my opinion, CNN is on the same page. This is what they said in the first paragraph... "First-time homebuyers will now have access to quick cash to help them with their down payments."

And then they stated this in the 2nd paragraph... "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."

As you can see, they said apply it toward. Sure, it's very easy to assume that they are saying that you can use the tax credit for the down payment, in both sentences mentioned above. But... but if you read further, it's the 6th paragpraph that they mention this.....

"The mechanics of the new program, according to NAHB economist Robert Dietz, allow lenders to purchase tax credits from the buyers and then collect the rebate from the IRS. Homebuyers must still come up with FHA's mandatory downpayment of 3.5% on their own, but they can use the tax credit to lower their principal balance and save on monthly payments."

So overall, I am not sure what page they should be on. After reading the whole article, they basically stated the same things that I did in my blog. Unless I am missing something else. thanks

Jun 01, 2009 06:58 AM

Bob Mori

RE/MAX Right Choice - Trumbull, CT

Jeff:

In your opening comments yousay, "ML 2009-15, it states that you can't use this tax credit for the required down payment of 3.5%." Yet in the CNNMoney article whose link I included in my previous response and that you quote above, "In my opinion, CNN is on the same page. This is what they said in the first paragraph... "First-time homebuyers will now have access to quick cash to help them with their down payments."

My confusion is that in CNNMoney I see nothing that says the $8,000 cannot be used for the 3.5% downpayment for FHA loans.

By the way, I am more inclined to accept what you have said in your opening as opposed to the writer for CNNMoney. I doubt that he has to deal with this stuff everyday as you do.

Jun 01, 2009 07:45 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

BOB... . thanks for stopping back.... I guess I would have to assume that there should be no confusion, because this is what they state in the 6 paragraph of the article which I mentioned above...

"Homebuyers must still come up with FHA's mandatory downpayment of 3.5% on their own, but they can use the tax credit to lower their principal balance and save on monthly payments."

The second part of that sentence says that they can use the tax credit to lower their principal balance.... and with the first part of the sentence stating that the borrower must use their own funds to cover the 3.5% of the down payment. It might not be 100% clear, but from how I read it, it's about 98% or more clearer. Thanks

Jun 01, 2009 07:54 AM

Regina P. Brown

MBA Broker Consultants - Carlsbad, CA

M.B.A., Broker, Instructor

Jeff, I appreciate you keeping us updated on this ever-changing issue. I need to have the correct info as soon as it comes out, so I can be an advocate for my buyers!

Jun 02, 2009 06:06 PM

The Somers Team

The Somers Team at KW Philadelphia - Philadelphia, PA

Delivering Real Estate Happiness

Jeff - Great points and clarification ! Is a little confusing but I think I got most of it ! If not, all one has to do is come back and read this post for the answers ! ~ Chris

Jun 07, 2009 01:43 PM

Anonymous

Mark Fullwiler

I have mixed feelings about the past confusion of the tax incentive being offered as a down payment. I was worried, should it have been possible, that folks who really were not prepared to manage a housepayment would get into trouble like the sub-primers of a few years ago. An angle to this credit that many are not aware of is that the borrower can have a co-signer and still qualify. I presently have two deals going where this is the scenerio. Are you seeing much of this?

Aug 26, 2009 10:43 AM

#109

Anonymous

kjs7654

Does anyone know who or where i can write to in regards to the 2008 "Tax Credit" or interest free loan of $7500. I don't fell that it is fair that in 2009 people would get $8000 "Tax Credit" that they DON'T have to pay back. I feel that we should be allowed to keed the money without paying it back, or that those in 2009 should have to pay thiers back as well. Those of us who purchased a home last year helped the economy as much as those who purchased in 2009. If anyone has info please e-mail me at KJS7654@cox.net Thank you!!!

Oct 17, 2009 10:39 AM

#110

Kevin Cottrell

Austin Real Estate Today - Austin, TX

99 days left for the tax credit in 2010. Most buyers not only don't understand the program details - but are unclear on the specifics, deadlines, etc. Great piece. Worse, right now, inventory in our market in St Louis is low - sellers think that spring here doesn't start for another 60 days and may miss the push of buyer activity. I issued a statement discussing need for sellers to get on the market by early Feb which has fortunately been picked up by the local press.

Jan 19, 2010 10:46 PM