The $8,000 tax credit for First Time Homebuyers - How & when to get it legally

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Topic : $8,000 tax credit for first time homebuyers - And no, I am not trying to beat a dead horse. This post is timely and very important because of the comments and e-mails that I have been receiving. I want to share with you a list, the legal ways that the borrower can receive these monies.

As many of us know, you can't use the actual $8,000 tax credit for your downpayment. The IRS even lists this in their instructions. Please read what happened to the Tax Credit : The $8,000 tax credit as a downpayment - GONE

The second issue? It is fraud to use the tax credit monies as your downpayment. Please read : FRAUD ALERT : Advice on the $8,000 first time homebuyers tax credit.



Here is the basic issue about whether or not you can use the tax credit as your down payment. You can't get the money ahead of time from the IRS to use it for your downpayment. You can get other monies ahead of time from other sources to use as your downpayment, and then apply for the $8,000 tax credit. But you can only apply for the credit after you buy the house. The IRS states this on their web site and in their instructions. The instructions and form 5405 for the IRS Tax Credit  Here is what the IRS says in a questions & answers section :

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.



So, how can I get the monies before I purchase the home?  Here is a list of your legal options. And keep in mind, the IRS says that you can't claim the tax credit before you buy your home. But read below, there is one way to get part of your tax credit monies before you buy, LEGALLY.

  • Saving monies to purchase
  • up to 100% of a gift from a relative/family member (FHA loans only)
  • From the Federal, state, and local governmental agencies and nonprofit instrumentalities of government (I will spell this out more below. This is about those certain states that will give loans upfront, to be used as your downpayment. This has been the main confusion of discussion.)
  • FHA approved non-profits 
  • monies from their employer in a form of employee contribution (for FHA loans only)
  • monies from secured borrowed funds... IE. borrowing equity from your home to buy another home or borrowing against your car that is free and clear or borrowing from your 401-k, etc, etc
  • Reducing your tax withholdings which will allow you more monies back in your pay check. (please read more about this below.)  But this is the only way to legally get some of your tax credit upfront

(please consult a CPA, tax accountant, or real estate laywer with further questions & specifics)




confused - in the blues

Are you in the blues, because you are still so confused?  Here is the breakdown of two main issues that people have been confused about.


  1.  Federal/State/Local programs- My state that I live in is offering a loan or monies for my downpayment. Yes, this is perfectly legal, because it is coming from a State or Local agency. You can also get this money upfront from a non-profit organization. No, not AmeriDream or Nehemiah, yet I am sure they are working on this. But there are other non-profit agencies out there that is not tied to the seller funded DPA's

       How does this work? Very simple..... you have to follow the state guidelines and use their financing programs. Yes, some lenders and banks are set up to do these state bond programs, in which the state has attached a second soft lien per se. Meaning if you sell or refinance the home in a certain period, that monies needs to be paid back. But keeping in mind, once in the house, you can then actually apply for the $8,000 tax credit, or what you are allowed to receive.


  2.  Partial Tax Credit monies upfront -  You can actually reduce your tax withholdings with the IRS.  This enables you to receive more monies in your pay check, because you are paying less taxes. You will just owe more at the end of the year. But wait, it can be applied towards the $8,000 tax credit that you can file for. Example :

       You do qualify for the $8,000 tax credit. If you didn't reduce your tax withholdings, you would have had to pay $1,000 to the IRS. But now you do reduce your tax withholdings and you were able to save an additional $3,000 up until the day you bought your house, the day that you settled on it. But now you will owe the IRS $3,000, plus your normal $1,000. That equals $4,000. Hey, but you can apply that towards the $8,000, which means that you will still get $4,000 back when you do next years taxes. And keep in mind, you can amend your taxes to receive the monies sooner. Again, speak to a CPA or tax accountant.




CONCLUSION :  So there you have it. In my first blog, you know that HUD rescinded the mortgagee letter, ML 09-15, which stated that some entities could do a bridge loan and give you your tax creditupfront, that you could use it for your downpayment. In my 2nd blog, I tell you that it's actually fraud to use any part of the tax credit as your downpayment, not unless you get it as I explained above. These are the basics and you need to be careful on who gives you what professional advice. Just because they say they are an expert or professional, doesn't always mean that they know what they are doing.  Sorry, but it's the truth.

PS... and for those that say builders in their states are offering this and or that...??. Unless they are using a non-profit setup, it's illegal. Please read what Ken Cook had to say about this. Ken Cook's Comment




My Series on the First time homebuyers $8,000 tax credit - Everything you need to now, from start to finish:



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Re-Blogged 2 times:

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  1. Tim and Pam Cash 05/17/2009 03:56 AM
  2. Marzena Melby 05/17/2009 11:41 PM
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


I wanted to thank everyone for their previous comments and support on my two previous blogs about this issue. I think this blog should clear up any misconceptions and any confusion of what is allowed and what isn't. I am still replying back to the other comments on the other blogs, so I might not get back to you until later tonight or tomorrow.  thanks and thanks for taking the time in reading these. We need to stay focused, update, and educated on these issues.  Jeff


May 17, 2009 03:49 AM #1
Chip Jefferson
Gibbs Realty and Auction Company - Columbia, SC

Good post as so many of my buyers are confused with all this media confusion. I am hoping to see some HUD revisions.

May 17, 2009 03:49 AM #2
Pat Champion
Coldwell Banker Camelot Realty - Mount Dora, FL
Call the "CHAMPION" for all your real estate needs

Great post thanks for the update it is great to know exactly what is allowed and not allowed.

May 17, 2009 03:54 AM #3
Tim and Pam Cash
Crye-Leike (Sango) - Clarksville, TN
Real Estate Professionals - Clarksville TN

Jeff, you are headed for the next star with this one.  Great breakdown for both prospective homeowners and Realtors.  Thanks much.

May 17, 2009 03:55 AM #4
Harry F. D'Elia
RentVest - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

Thanks for this great information. You are an expert in mortgages. Yeah!

May 17, 2009 04:12 AM #5
Eric Villaverde
DoubleTree Home Inspection Services L.L.C. - Phoenix, AZ

Another great post. Now I am in the know.

May 17, 2009 04:29 AM #6
Loan Survivor Real Estate Financing Expert
Purchases, First Time Buyers, Pre-Approvals, Refinance - Birmingham, MI

Michigan isn't doing anything yet on bridge loans so the $8k can be legally fronted for a home purchase. 

Great content from an expert as always.

May 17, 2009 04:33 AM #7
Tom Burris
NMLS# 335055 - Baton Rouge, LA
Texas/Louisiana Mortgage Pro - 13 YRS Experience

The loan against paid off auto is very good. A lot of people don't realize they can do this. Easily paid off with tax credit.

I even had a guy sell a Roping Horse to scratch together enough to close.

Guidelines are flexible enough.... no need for the fraud.


May 17, 2009 05:11 AM #8
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


LAURA.... . not only just buyers, but many realtors and loan officers are very confused. I think my head is spinning from all of this... well, I am done with it, after writing about this for 3 days now... ;o)

PAT.... . my pleasure and I hope this did clear up some issues. thanks for stopping by.

TIM & PAM... . not sure about another star on this one... but I do hope this one gets recognized a lot, because it should be the icing on the cake. Meaning that this should clear up what is allowed, as opposed to what is not allowed. thanks

HARRY... . thanks for the kind words and for the comment.

ERIC.... . glad I could help out and thanks for stopping by.

DREW... . I am not sure about Michigan and as mentioned, there can be soft seconds, but it has to come from the gov't or non-profit agencies.  thanks and thanks for the polite compliment.

TOM B. .... . I think the loan against your car is one that is hardly talked about. Hell, you can get monies for anything that you own, on FHA loans, as long as it is properly documented.  Your roping horse example is comical though... but the bottom line is that it worked. Yes, guidelines are flexible, you just need to be speaking to a true FHA Expert.  thanks and thanks for your support in this.


May 17, 2009 05:22 AM #9
Tim Bradford
Cleveland, OH
NMLS 250013

Jeff,   Correct me if I am wrong with your statement "you can get monies for anything that you own".  I believe you and I know the rules, however someone reading may try to use household goods mistakenly.  . 

Copied from 4155.1 Section 5.B.7

Funds may be borrowed for the total required investment, as long as satisfactory evidence is provided that the funds are fully secured by investment accounts or real property. These assets may include stocks, bonds, and real estate other than the property being purchased. Certain types of loans secured against deposited funds, where repayment may be obtained through extinguishing the asset, do not require consideration of a repayment for qualifying purposes. The asset securing the loan may not be included as assets to close, or otherwise considered as available to the borrower. The types of deposited funds that can secure the loan include

• signature loans (Note Added with Verifyable and acceptable Collateral)
• the cash value of life insurance policies, or
• loans secured by 401(k) accounts.

An independent third party must provide the borrowed funds for collateralized loans.

The seller, real estate agent or broker, lender, or other interested party may NOT provide such funds.

Unacceptable borrowed funds include

• unsecured signature loans
• cash advances on credit cards
• borrowing against household goods and furniture, and
• other similar unsecured financing.

May 17, 2009 09:44 AM #10
Barbara S. Duncan
RE/MAX Advantage - Searcy, AR
GRI, e-PRO, Executive Broker, Searcy AR

Thanks for a comprehensive look at what can be done with the tax credit.  Need to bookmark.

May 17, 2009 01:06 PM #11
Marzena Melby
Coldwell Banker Burnet Realty - Richfield, MN
Realtor, Twin Cities Minnesota Real Estate

Hi Jeff,

As far as I am concerned, you can "beat the dead horse" all you want... lol

But, seriously, this information is critical, so I thank you for writing these posts.

Have a good day!

May 17, 2009 11:47 PM #12
Gerry Suarez Jr.
Jet Home Loans NMLS 1660135 - Maitland, FL
FL Mortgage Guru

Jeff, you were busy this weekend!

but what a great and timely series of posts. I'm planning on calling the Memphis Area HBA today to get specifics on their program, which I will gladly share. I know builders get a lot of bad rap but I work with a lot of them and most take great care to do their business fair and legal.

Gerry Suarez, Jr.

Your FHA Loan Pro!

May 18, 2009 12:35 AM #13
Connie Harvey
Pilkerton Realtors - Brentwood, TN
Realtor - Nashville TN Real Estate

Jeff, I knew that if I was patient that you would give us a complete updated version of this entire thing. Thanks. You answered several of my questions.

May 18, 2009 02:03 AM #14
Matt Stigliano
Kimberly Howell Properties (210) 646-HOME - San Antonio, TX

Jeff - It's only beating a dead horse when the issue is dead.  First thing I noticed this morning?  Two instances of people hitting my site via keyword searches involving "first time home buyer tax credit" and "down payment."  The horse isn't dead yet, you better keep swinging.

May 18, 2009 09:24 AM #15


If my client uses her $8K tax credit for closing cost only, can she still get credit from the seller of 3.5% towards the FHA down payment?

May 30, 2009 02:31 PM #16
Ed Vogt
Midwest Properties of Michigan - Grandville, MI
Grandville, MI Midwest Properties

I'm reading your blogs, within another blog, within another blog and my head is spinning - but this is all good advice.  Thanks!

Jun 02, 2009 08:40 AM #17
Linda Alexander Sacramento
Sacramento, CA

Hi Jeff, It looks like YOU are "The Man" with regard to pertinent information!

Please make a note that the deadline to benefit from the tax credit is December 1, 2009.

First-time homebuyers may be able to take advantage of a tax credit for homes purchased in 2008 or 2009. The credit:

  • Applies to purchases that close after 4/8/08, and before 12/1/09.
  • Applies only to homes used as a taxpayer's principal residence.
  • Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar.
  • Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

The credit is claimed using Form 5405.

IRS SOURCE:,,id=204671,00.html

Summary information provided by Linda Alexander, real estate agent, Sacramento, CA

Serving clients seven days a week - I welcome your California referrals.

PHONE: (916) 640-3131


Aug 30, 2009 09:26 AM #18
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