Clarification before you read : Yes, you can use the tax credit as part of your downpayment. I have stated this before. If it comes from non-profit organizations or Federal, local, or state agencies. I mentioned this in my other blog, in the bullet points . But just from the few comments and some on facebook, you are missing the POINT. It’s fraud to apply for this tax credit through the IRS, prior to actually buying your home, if you receive the monies from the IRS DIRECTLY. Please stop reading into HUD, downpayments, etc, etc and understand what is considered FRAUD by HUD and many lenders.
2nd UPDATE – 9:01 pm 5/16/09 : I am not here to throw people under the bus. But I am getting comments and e-mails telling me that this is allowed or that some clients have done this, one who even works for the IRS, and that they would never do anything illegal. Two things on that…
1st – You assume this. Do you know how many people that have worked for the IRS, the trade commission, stock brokers, lenders, and loan officers that have a huge responsibility & should be ethical… yet these same people in these industries that have committed fraud.
2nd – I never said that it’s FRAUD in the eyes of the IRS. But Lawrence Bland, comment #6, makes this statement. FRAUD - I said that HUD and many investors, lenders, and underwriters have stated that this is fraud. And if you think about it, this is what matters most, because without them, the deal doesn’t close anyhow. I know my blog is long, but Ken Cook summarizes it well in his comment. Ken Cook’s Comment
Do you take the plunge, possibly jeopardizing your career? If a loan officer told you to jump off a bridge, would you? You'll see my point below.
Who do you listen to? Where do you get your information from? It's worse now than ever before. I once was able to tell a borrower or a realtor, if you didn't believe me, go call up 5 other loan officers. I would say this, because you would think that you would get at least 3 to 4 people giving you the same answer. PEOPLE.... this is not true anymore. I had two separate examples that took place that 3 out of 4 loan officers gave the same information that was 110% incorrect. Rut row... there goes my theory out the door.
What about all of this hype over the $8,000 first time homebuyers tax credit? It's gotten way out of hand. I wrote this blog, Tax Credit for downpayment, it's GONE, the story of the $8,000 tax credit. You need to read many of the comments. Here is a great example of what I am talking about.
Here are 2 examples from comments that I received by a realtor. Keeping in mind, I am not trying to throw them under the bus, but to help educate and bring awareness. How else do we learn and possibly not make mistakes that could be so costly.
Example 1 -
"From my understanding from 2 CPA's and mortgage lender that it CAN be done by applying for the credit prior to the closing with an accepted contract. There are risks like not closing before November 30th. But this can happen."
OUCH - No, double ouch. Okay, so she was able to talk to 2 CPA's and a loan officer that both confirmed this. Okay, so it might be legal from their standpoint. But what about HUD's standpoint and from many lenders and underwriters. Don't they actually have the final say in all of this? YES, they do !!!
Example 2 -
"I just wrote up an offer and the loan officer told me that my buyer would be using some of the tax credit for the down payment. So I'm not rescinding my blog post just yet."
My question to this realtor... What about your fiduciary responsibility to the buyer? I received an e-mail from this person after asking the same question. Their response? They know the letter was taken down, but they are looking for an official statement. Huh? You think HUD or the NAR is going to say, "we screwed up." ??? Why not call HUD yourself, be proactive.
In any case, let's study what the IRS says. Here is Form 5405 - The first time homebuyers tax credit form
As you can see, letter be asks for the date aquired, but tells you to read the instructions. So let's go to that part of the instructions.
Wow... enter the date that you acquired the home. Acquired? Wouldn't that mean when you bought it and not when you are going to buy it? It states this right under the first sentence. So why are some CPA's, accountants, and loan officers stating that you can get the money before you buy, while still submitting this form. ??? Inquiring minds want to know.
Here is my opinion and some facts. And you can ask such loan officers as Tom Burris, Ken Cook, and Gerry Suarez, because they have checked also with HUD and with several underwriters with different lenders. Who says what....
- HUD says that it's illegal and they recognize this. But wait, some lenders have allowed this and my buyer has already closed. Keep in mind that HUD still has to insure these loans, so maybe the "shit" will hit the fan in 6 months or so, since this is all still new.
- Underwriters - Gerry and myself have spoken to several underwriters at major lending institutions that have said they will not do this type of loan, if the buyer had received the monies from the IRS, if prior to closing on the home. Not unless it falls into another category. Those categories I have listed in the middle of this blog. Tax Credit - what is allowed prior to closing - Please go to my bullet points in this blog. This is what is legal and how.
LINK for - TAX CREDIT FORM 5405 and instructions
We need to stop the bad press. As you can see, this has gotten out of hand and everyone seems to be an expert. Yet, nobody is speaking to the correct experts. Be proactive. If not sure, call HUD yourself. Call a trusted loan officer/expert and not one that claims to be. Again, keep in mind that you can use the $8,000 tax credit for the downpayment and get these monies before you apply for the tax credit with the IRS.... BUT... this in regards to specific circumstances that I have mentioned. And if you get the money the correct way from other sources. This blog is not about this. Please read the other blog. What this blog is about is that if you don't get the money from other sounrces prior to closing, and that you just apply for the money itself, prior to closing, this is the FRAUD part. Please understand the difference. Many of the commenters below have confused themselves on these issues.
Since I was trying to clarify several things, Tom Burris made this comment, which details what I was trying to convey. Please read : Tom Burris's comment -
Lastly, I want to share this which comes directly from the IRS site in regards to the $8,000 tax credit : This was supplied by Matt Stigliano - The IRS questions & answers :
Q. I am in the process of buying a home. I expect to close the deal before December 1, 2009. Can I claim the first-time homebuyer credit now? That would allow me to use the refund for a down payment.
A. No. You may not claim the credit in anticipation of a purchase that has yet to happen. Until you have finalized the purchase of your home, which for most purchasers occurs at the time of the closing, you do not qualify for the credit. IRS news release 2009-27, First-Time Homebuyers Have Several Options to Maximize New Tax Credit, contains details for filing options if the home is purchased after April 15, 2009.
Lesson of the Day : When you hear real estate related news stories, maybe you should check the sources and double check the stories. I could give you 10 examples of this just from what I have read in the last 5 months. As we say, "Buyer Beware".... how about we say, Realtor/loan officer Beware !!!
LEGAL WAY of obtaining your tax credit before settlement. Please read : $8,000 First time homebuyers tax credit informartion. Please go down about 1/2 way, next to the 1st picture with the calculator and the money showing. It talks about reducing your deductions.
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.
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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 !!!!
Copyright © 2009 by Jeff Belonger