Using First-Time-Buyer Tax Credit For Closing Costs

As we've reported in previous issues, qualified first-time buyers (and those who haven't owned a principal residence in three years) can take a tax credit worth up to $8,000 if they close/settle on the purchase of a principal residence no later than November 30, 2009 (unless extended by Congress). The credit cannot exceed 10% of the home's purchase price.

In late May 2009, the Department of Housing and Urban Development issued guidelines allowing the credit to be "monetized" so borrowers can apply it to closing/settlement costs and down payments (with restrictions). Prior to the new plan, borrowers who qualified for the credit had to wait for their federal income tax refund to actually receive it -- preventing them from using the cash to help with the home purchase.

Now, approved institutions are allowed to offer bridge loans, secured by the anticipated tax credit, to borrowers of loans insured by the Federal Housing Administration. The monetized credit can then be used to help pay discount points (to reduce the mortgage interest rate), lender fees and additional down payment -- provided the borrower is able to pay FHA's minimum 3.5% down payment without using the tax credit.

Here are two valuable online sources for more information:
Summary of the First-Time-Buyer Tax Credit: www.TinyURL.com/ckywn4


HUD news release on monetizing the tax credit: www.TinyURL.com/ny8vun


You can also contact the FHA Resource Center at (800) 225-5342.