Posted by: Brian Powers | May 18, 2009

First-time Homeowners to get Tax Credits Via FHA Loans

Some additional information with regards to the $8000 First Time Home Buyers tax credit and how buyers can use it at closing to fund their down payment.

First-time Homeowners to get Tax Credits Via FHA Loans


This year, some first-time home buyers will charge their down payments to the taxpayer.

Buyers will be allowed to use their first-time homeowner tax credits as down payments when they get FHA-insured loans, Secretary of Housing and Urban Development Shaun Donovan announced. The National Association of Realtors hailed the announcement, and asked taxpayers to subsidize all home purchases, and not just for first-time buyers.

The down payment initiative is built onto this year’s first-time homebuyers’ tax credit, in which qualified buyers can get an income tax credit of 10 percent of the home’s price, or $8,000, whichever is less. The credit is half that for spouses filing separately, and the credit phases out for higher-income filers.

Under the plan announced by Donovan, buyers can get a piggyback mortgage or an unsecured bridge loan for the amount of the tax credit when they get a Federal Housing Administration-insured mortgage. The piggyback or bridge loan can take the place of a down payment. Typically, FHA-insured loans require a down payment of at least 3.5 percent.

Borrowers will be expected to pay off the piggyback or bridge loans when they claim the tax credit on their 2009 returns next year or their amended 2008 returns this year. To claim the tax credit, buyers have to buy by the end of 2009.

“We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network,” Donovan said. He cited a home builders’ study that claimed that the tax credit will stimulate 101,000 sales to first-time buyers, and another 59,000 home sales to people who will be able to buy homes because first-time buyers bought their homes.

By using tax credits as down payments, buyers won’t have to put some of their skin in the game by shelling out their saved-up cash to make down payments.

In response to the FHA’s new down payment policy, the National Association of Realtors patted itself on the back.

“Last year, NAR asked Congress to pass housing stimulus legislation, which passed and is beginning to show results,” said the Realtors’ president, Charles McMillan.

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