FHA Approves $8,000 Tax Credit at Closing - With a Caveat
Following up on the initial announcement that we presented a few weeks ago, HUD has now finalized a plan to allow home buyers to use the $8,000 tax credit for first time buyers, at the closing of their home purchase.
This new plan will allow buyers who qualify for the current first time home buyer tax credit to utilize these funds at closing, as opposed to waiting for the refund, until after closing. Previously buyers had to close on their home and then file an amendment to their 2008 taxes or wait to file their 2009 taxes next year, to take advantage of the credit.
However, there is one caveat that is included in this new final plan, and that is that the $8,000 can be used for closing costs or down payments, but can not be used for the 3.5% minimum down payment currently required on all FHA loans.
What that means is that this new plan will do nothing to help those buyers who lack the 3.5% down payment required for the purchase of a new home, using FHA financing. Instead, this plan will be aimed at allowing buyers to borrow the tax credit, at closing, for additional down payment above and beyond 3.5%. As well, as allowing home buyers to use the tax credit funds to be used to pay for closing costs.
Borrowers can still receive the required 3.5% down payment in the form of a gift from family members, as has always been the case with FHA financing.
In addition, this new initiative to receive the tax credit at closing will be more of a short term bridge loan for the borrowers to receive the $8,000 tax credit, as a silent second mortgage from an FHA mortgagee lender or a government agency and then having the funds repaid when the actual tax credit from the government is processed.
This new plan will certainly provide an incentive for some borrowers who are already looking to purchase a home, but will it create an initiative or opportunity for more buyers to purchase? We will have to wait and see.
For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
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