First Time Buyer Tax Credit Has Changed for the Better

Last week, the FHA (Federal Housing Authority) announced that the First-Time Buyers Tax Credit can now be used for a down payment on an FHA loan.  This is really great news for first-time buyers!  First-time home buyers can now add the $8,000 (max) tax credit to their down payment and/or their closing costs.
 
FHA mortgage loans require a 3.5% - 5% down payment.  The tax credit may not be used in place of the required down payment for your FHA loan but it can supplement it, which may result in a slightly lower mortgage payment.
 
All mortgage loans have closing costs.  The closing costs for an FHA mortgage loan is about 3% of the sales price.  You can apply the tax credit, 10% of the sales price, to your closing cost.  The tax credit can be applied to the upfront mortgage-insurance premium (MIP), which is 1.75% of the sales price.
 
Here is an example of what this means to you in dollars without the tax credit:

Sale Price: $125,000
5% Down: $6,250
Closing Costs: $3,750
MIP: $2,187
Total Funds Needed: $12,187
Loan Amount: $118,750
Mortgage Payment: $745.81
 
Here is an example of what this means to you in dollars with the tax credit:

Sale Price: $125,000
5% Down: $6,250
Additional Down: $2,063 (paid by tax credit)
Closing Costs: $3,750 (paid by tax credit)
MIP: $2,187 (paid by tax credit)
Total Funds Needed: $6,563
Loan Amount: $116,687
Mortgage Payment: $734.73
 
FHA mortgage loans will allow funds to be gifted to the buyer by certain government entities, by employers and by parents.  The gifted funds can be used as part of the required down payment.  Interest rates are hovering just under 5% at this time.  However, interest rates have been increasing slightly over the past few weeks.  If you are a first-time buyer or have not owned a home within the last three years, now is the perfect opportunity to buy a home with less money out of your pocket.  This is especially true when you choose a home from the many available in West Virgina's beautiful counties of Jefferson, Berkely, Morgan or Hampshire.  But remember, the tax credit expires in a few months (November 30, 2009).  Escrow must close before the November deadline. 

Tommy Underwood, your West Virginia real estate expert