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First Time Homebuyer $7,500 Tax Credit Information - With IRS Form 5405

First Time Homebuyer Tax Credit Information <= Link to pdf with FAQ and IRS Form.

I am getting lots of questions about the $7,500 First-Time Homebuyer Tax Credit authorized by the Housing and Economic Recovery Act of 2008.

Seems that many believe to be a Down Payment Assistance Program. And it is not.....

But, it could be used to pay closing costs on a FHA Streamline Refinance of a recently closed FHA loan!!! I have a borrower doing that now. They bought last yr and have a rate over 6%. They will use their tax 'rebate' to help with closing costs on their refinance.

REALTORS: Please feel free to share the above document. I suggest you print one and keep it with you as you are working with clients. And, as always, I am available for follow up questions.

Show me some love.... Re-Blog this article.

Tom Burris
DallasLoanGuy.com
Dallas, TX

"Your Dallas Mortgage Consultant"

http://www.dallasloanguy.com/

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I write about Texas Home Loans , live in the Dallas, TX area and lend across the entire Great State of Texas!! Subscribe to My Blog and stay informed about current lending changes!!

While I personally focus on Texas Home Loans and First Time Home Buyers.... I do lend in other areas.

Posted by Tom Burris | Texas Mortgage Dallas Mortgage FHA on 01/14/2009 12:45 PM

Comments (26)

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26 Comments on First Time Homebuyer $7,500 Tax Credit Information - With IRS Form 5405

JAN

2009

I had no idea this even existed! Pretty cool man, I will forward this like its hot.

Thank you for providing this link! You always provide such relevant conent.

Thanks for the pdf, I downloaded it for use. :)

JAN

2009

Good information Tom. The credit has been a big topic for new buyers.

Tom,

This is a great post!!!!! IMO, the word has not adequately got out to the masses. My experience is somewhat different than yours. Since this tax credit was announced I can recall perhaps only two prospective homebuyers that has either mentioned this tax credit or asked questions about it. As Real Estate and Mortgage Professionals, this should be a part of our discussion with all our new clients. Deadline is approaching, perhaps it will be extended.

JAN

2009

There ya go, Tom. I have reblogged your post as requsted. :-)

HI Tom, as I read the IRS rules, it says this is a TAX CREDIT, which means you first have to have incurred the charges, paid for it.. then you can get it back, sorta like a rebate, but this is only a LOAN to claimants, they will have to repaid this rebate, at no interest, with a $500. payment each year, starting the second year and going until the rebate (tax credit) is paid in full or until the house sells then the homeowner will owe the entire amount.

This tax credit will not help people who do not have the $7,500. up front. It is a TAX CREDIT, rebate, loan. Not a tax advance.

Some lenders in my area are telling folks to borrow the $7,500. from grandma or someone and then they can repay it with the tax refund credit. I can see this as helpful to a homebuyer in the short term but do not confuse this with free money. It is a LOAN. to be paid back by terms the government dictates.

I am whole opposed to this tax credit as it does not replace a Down Payment Assistance program and it will not help many who truly need it.

Gail,

It is what it is.... An interest free loan. <= How can you be opposed to that?!?!?!?!?!

Thanks Shirley!! And everyone for the comments.

Tom, I am opposed to this seemingly innocent attempt by government to make the people think they are getting something for nothing. I think in 3 years time we will see a whole lot of pain caused by this "free loan money" . The IRS is unforgiving and not a place for defaults on a loan, with today's economy I see this loan as being a stage set for default. JMHO. :)

The IRS will penalize people to the nth degree on defaults with daily penalties and interest on top of interest. Having worked for them for a while I have seen an endless amount of pain caused by payment plans that were not adhered to. Maybe if this loan wasn't going to be thru the tax law I wouldn't be so Adamantly against it.

I agree Gail. Ther term 'credit' is misleading. I don't play semantics games, I just relay the info; And that is the term used all over the NAR, NAMB & IRS websites. Since it can be confusing... I am sending out a letter to all of my clients that qualify for the credit along with a copy of their HUD-1 Settlement Statement.

If someone cannot pay $500 per yr at tax time, they shouldn't be buying house anyway!!! For responsible people, this interest free loan can be used in many ways.... Upgrade the fence. Paint, landscape, ect. Well worth the investment down the road.

Me, personally, if I qualified... I would put it in this super low stock market. By the time it is paid... I will have one college education paid for.
$500 at tax time? I can always adjust my w-4 to compensate.

Remember, poor people usually get a tax refund anyway. So the $500 isn't a burden. They will just get LESS back to spend on beer and ciggies. LOL

Gail, if it didn't go thru the tax law, more people would try to roll over on the debt.

Regardless: I am a super strong supporter of the GIFT because I am a person that believes in personal responsibility. The person responsible needs to understand when they apply for the credit that they have to pay it back interest free $500 at a time. It is even spelled out on the form.

I just don't see how the guv't can help any more than this.

And don't get me started on faux charity dpa. They artificially inflate values and put people in homes that do not need to be there. Come on.. you know most of these people that use dpa can barely scrape together $500 for an earnest money check.

If folks who never actually originated loans and had to peer deep into *everyone's* financial they probably would look at this in a completely different manner. We still have some people opposed to Seller Funded down payment assistance who have no idea that's the most regulated and affordable form of DPA. Let's do what Gail says and set a clock and see how many problems this free loan causes in the next three years.

"Remember, poor people usually get a tax refund anyway. So the $500 isn't a burden. They will just get LESS back to spend on beer and ciggies. LOL"

Tom, on some points I can agree, but I still dislike the Tax Credit.. I think too many people will "forget" it was a loan and thereby it will become a real issue, The same as the DPAs of the past. The few that will use it for a new fence or such are probably not the ones who will "forget" it.

Don't get me wrong Gail.

The IRS is a nasty agency. And you are right about the forgetfuls

@Gail... you are always going to a have a few of this and a few of that. You have a few realtors that stink... a few loan officers that stink... a few buyers that are liars or that don't listen or that want to do it your way.... you have some people that run red lights... a few that cheat on their income taxes.... My whole point and my main concern is that the masses will understand this. Most... will do this... most will do that. If ever had to worry about each and every person, we would not get any where...So you can make yourself to be a hater of the taxc credit... or a hater of the DPA.... just because of the few.... just my .02

RD 2 of the DPA programs... are they coming back?

jeff belonger

JAN

2009

JAN

2009

Tom,

I wrote about this when it first came out on the C2A blog and you are right it is confusing for consumers or by now it could be forgotten. You should post this on some consumer facing sites like zillow and trulia. Did you post this to localism?

Lol- sorry for the unsolicited advice.

Rebecca, your un-solicited advice is always welcome.

I think it was supposed to go to localism. I don't think I am signed up for those other sites.

Maybe I can set aside some time and post it.

I have a question about this tax credit. I purchased my home on July 1, 2008. On December 29, 2008 I refinanced to get a lower interest rate. Will this affect me being able to take this first time home buyers tax credit?

JAN

2009

Hi Christy

The refinance has nothing to do with it.... This credit is for people who purchased between April 8, 2008, and July 1, 2009.

JAN

2009

Tom... I missed the part that you mentioned refinance. But you didn't go into details of how she is doing this... could you add that? Because I am semi confused... did she buy after April 8th, 2008 and you are refinancing her now? I should have asked this the first time around... thanks

jeff belonger

JAN

2009

Thanks Jeff, I will clarify the original post

Tom... but could you still add more... example... let's just say that I am closing next week on my refinance... how would I use this money? How could I get it so quickly? Or, is she using her own money now and repaying herself later??? Just looking for more clarification and details. Overall, this is an excellent idea, just trying to figure it out, on how to make this work with the refinance in a timely manor.

jeff belonger

JAN

2009

Is this a tax free credit? Do I pay tax on the $7500 next year?

Great question, Judy

It is a tax free loan. You pay it back $500 per payment(at tax time) over 15yrs.

New legislation is being proposed to make it where it doesn't need to be paid back.

JAN

2009

DON'T FORGET THE LOOPHOLES:

If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated.

If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.

And of course, the credit does not have to be repaid if the taxpayer dies.

EVEL (IRVING, TX)

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