This update from Mortgagee Letter 2009-15 establishes guidelines for use of the first-time home buyer tax credit as settlement funds.
Courtesy of Loan Tool Box - www.loantoolbox.com and Jeff Mifsud.
Here are the 10 things you need to know about these changes:
1. The IRS tax credit refund can be made only to the taxpayer and not a third party.
2. Government agencies may offer tax credit advances with second liens.
3. The buyer cannot get cash back through the tax credit advance.
4. The 2nd lien may not exceed the down payment, closing costs, and prepaid expenses.
5. The 2nd lien may be "soft" or require payments.
6. Payments on 2nd liens must be included in ratios unless deferred for at least 36 months.
7. Balloon payments on 2nd liens may not be before 10 years.
8. FHA approved lenders and FHA approved non-profits may purchase the tax credit.
9. Tax credit purchaser may not charge more than 2.5% of the tax credit as a fee.
10. IRS may deduct from the tax credit: unpaid student loans, tax liens and garnishments.
For more information - You can read the HUD update - http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-15ml.doc
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