I am in Salt Lake City this week — and guess what?

They have foreclosure homes for sale just like Arizona does.

If you are looking to purchase a Salt Lake City foreclosure home, or a foreclosure or short sale home anywhere in the country and were planning on taking advantage of the $8000 tax credit your deadline is coming fast. In fact, the deadline for signing on the bottom line of your new home is the end of June 2010.

As the tax credit is defined now, you had to have had a signed sale contract in place before April 30, 2010 and you must close your escrow on your new home by June 30, 2010 to be eligible for the $8,000 home buyer tax credit.

Well, we’re now into June and the deadline is fast approaching. A lot of people who have not closed on their home are worried about being able to close by the end of June and are asking if there is an extension available. So far, I have to tell them – “nope, there are no extensions at this point, Congress hasn’t put anything into place.”

It certainly is a stressful time for a lot of people waiting to see what happens with their loan approval – not only the buyer, but the sellers who are waiting for the short sale of their home to get approved. Next are the real estate agents who have paychecks involved, as well as title people, and other folks who typically get paid at the time of escrow for the work they have put in ahead of time to get ready for closing.

Coupled with the question about whether we’re going to get an extension to let folks finish their home purchases is a question about whether we’re going to get another tax credit program. Some folks are asking for it to add more fuel to the housing market as it has severely slowed down since April 2010?
I’m not going to pick sides on this one as there are way smarter people than me analyzing it from both sides of the political spectrum. But I am willing to offer one thought as an alternative.

Dare I mention it, but how about if we bring back the Ameridream and Nehemiah programs? These programs allowed for seller contribution on FHA mortgage loan programs in the form of a gift through a third party. Fannie Mae and Freddie Mac could adopt something similar to open up a down payment allowance from the seller equivalent to the $8000 and $6500 tax credit amounts that are about to expire.

I know, I can hear the comments – go ahead and fire away. Not that this is going to solve our recession problems like so many people think a recovered housing market will, but it certainly might shift where money is coming from for down payment incentives from that of the government to that of the banker holding the short sale request or foreclosed home.

I’m just sayin’.

Other Interesting Posts

• Short Sale, Trustees Sale, Loan Modification: Luck Is The Difference
• FHA Less Than 90 Day Financing Still Available in Arizona
• Should you carry Medical Expense Coverage On Your Car Insurance?
• Seniors In Foreclosure: An FHA Reverse Mortgage May Save You

I think I might be the last blogger to cover the recent 8000 tax credit extension and expansion that was passed… but better late than never.

$8,000 First-time Home Buyer Tax Credit Details

• The $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• The tax credit applies only to homes priced at $800,000 or less.
• The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
• For homes purchased on or after January 1, 2009 and on or before November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing jointly.
• For homes purchased after November 6, 2009 and on or before April 30, 2010, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

The $6,500 Move-Up / Repeat Home Buyer Tax Credit Details

• To be eligible to claim the tax credit, buyers must have owned and lived in their previous home for five consecutive years out of the last eight years.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500.
• The tax credit applies only to homes priced at $800,000 or less.
• The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, the home purchase qualifies provided it is completed by June 30, 2010.
• Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

Other resources for learning more about the new home buyer tax credit extension and expansion:

Phoenix Real Estate Guy

FederalHousingTaxCredit.com

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• Will The $8000 Tax Credit Be Extended?

Will the$8000 tax credit for first time home buyers be extended?

Yes.

What the heck – with the start of the football season, I am in a betting mood and this seems like as good of a bet as any.

Now, keep in mind — it is just a prediction, because believe it or not… no one from Washington actually calls me and asks for my opinion about these kinds of things – no matter how many letters I write that start with “Dear President Obama”.

4 Reasons The $8000 Tax Credit Will Be Extended

IF the real estate market of the US has turned the corner (if), it just barely did – and it needs a little while to pick up some more steam.

1. There are still more foreclosures coming – which will increase inventory.
2. There are programs such as the Neighborhood Stabilization Program that has enough money to run into next year.
3. The decision whether or not to extend it will be made by Congress and we all know that they are going to cater to what the masses want.
4. There is currently at least one bill that not only extends the credit, but allows more people to actually claim it:

“H.R. 2801 (111th Congress) 2009-2010 Home Ownership Moves the Economy (HOME) Act of 2009, is a bill sponsored by Howard Coble, a U.S. Representative from North Carolina’s 6th District. Representative Coble’s bill’s goal is to extend the tax credit into 2010 as well as allow all home buyers take advantage of the tax credit.”

Don’t think that the $8000 tax credit will be extended? Leave a comment and I will bet you a Diet Pepsi it gets extended!

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• 8000 Tax Credit Extension and Expansion

The $8000 tax credit is coming to an end.

If you are thinking of buying a home and taking advantage of the $8000 tax credit, you will want to actively get into the process of searching for a home as soon as possible. You might not have as much time as you think – because the process of buying a home has been stretched out recently due to market conditions (here in Phoenix) as well as the time it takes to get approved for a mortgage due to new mortgage rules.

The $8000 tax credit program is scheduled for termination as of December 1, 2009 – and unless it gets extended for some reason, you must close on your new home prior to this date. If you are thinking to yourself “December is still a ways off…” consider this:

• Due to current market conditions, houses in the sub-$300k range are getting multiple offers – which means you may need to “bid” on multiple properties before “winning” one.
• It “normally” takes 30 days to get your financing arranged once you have a sales contract.
• According to the IRS, you must actually close on the home home for it to be considered occupied and qualified for the credit.

Is The 8000 Tax Credit Going To Be Extended?

Yes.

That is my official prediction. And now that I have said that, I probably should tell you that I am wrong about these kinds of predictions more than I am right.

So don’t take my word for it, plan your financial life as if my prediction of the $8000 tax credit being extended is wrong and it will end forever after December 1. It is impossible to tell for sure whether or not it will be extended, but I can’t think of a bigger mistake than hoping that it gets extended, putting off buying your home until “next spring” and then finding out that the $8000 tax credit ended.

Better hurry!

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• Dear President Obama
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• Are Loan Modifications Real?

Are you a loan officer reading this blog?

Welcome. Pull up a chair today and feel free to show us your mortgage expertise. Flex your mortgage muscles if you will.

Feel free to advertise right here on this post with your name, contact information, picture – pretty much whatever you want – if you are actually able to help people “monetize” the 8000 tax credit.

Based on the number of times each week that I am asked “hey, do you know anyone who is helping people actually monetize the 8000 tax credit?” you will probably get tons of business.

I have searched and searched for a lender who can help first time home buyers monetize the 8000 tax credit since it was announced that it was possible – with no luck.

I am currently not aware of any lenders in Arizona who are able to help people monetize the 8000 tax credit – and if you know of any please spread the word and have them announce it here so I can help drive business their way!

These are crazy times in the mortgage business.

Related Posts

• New Home Buyer 8000 Tax Credit Down Payment: Answers To Questions
• Monetizing 8000 Tax Credit for New Home Buyers: Popular Questions and Answers
• New Home Buyer Tax Credit Monetization Plan: How Much Will It Cost?
• 8000 Tax Credit Bridge Loan: Bridge To Where?

It seems to me like pretty much anyone who is using the FHA loan program to buy a house is probably asking their loan officer:

“What is this I hear about being able to monetize my tax credit so I can use it for closing costs and down payment?”

So I thought I would post some of the most frequently asked questions and answers as provided by NAHB.org:



1. What exactly does “monetizing” the tax credit mean?
The term “monetization” is defined as the act of converting something into money. In the context of the first time home buyer tax credit, monetization means to treat the payment of the credit as if it was cash and allow its use as a payment for certain closing and downpayment expenses.

2. What is a “bridge” loan?
A bridge loan is a type of loan that is intended to be outstanding for a very short time period, often only a few days or weeks. Bridge loans are use to provide funds in situations where the borrower is expected to receive funds, such as the payment of this tax credit, within a very short time.

3. What is a state housing finance agency?
A state housing finance agency, often referred to as an “HFA,” is an organization that provides funding for a variety of loan and grant activities related to for-sale and rental housing. HFAs are also typically responsible to distribute grant funds from federal agencies, such as the U.S. Department of Housing and Urban Development (HUD).

4. How do I find out if my state housing finance agency is providing this service?
The best way to locate information about your state’s HFA is via the Internet. The National Council of State Housing Agencies (NCSHA) maintains a directory of state HFAs at: http://www.ncsha.org/section.cfm/4/39/187

5. What kinds of lenders are doing this? How can I find a list of lenders who are providing these short-term loans?
Many state housing finance agencies are either running or sponsoring programs that will use a tax credit for a downpayment. These programs often place a second lien on the home as collateral to secure the eventual repayment of the tax credit funds. Some state HFAs lend directly to home buyers while other HFAs work through networks of state-approved lenders.

In addition to state agencies, FHA-approved lenders may be offering to purchase a first time home buyer’s tax credit in conjunction with an FHA-insured mortgage loan.

Interested buyers should check with area lenders, home builders, or real estate agents for the names of participating lenders.

The Federal Housing Administration (FHA) also has an online tool to find FHA-approved lenders: http://www.fhaoutreach.gov/FHALookup/

6. What types of loans qualify?
Any lender could offer a program that would permit a first-time home buyer to apply the tax credit to funds needed for a loan that is obtained in conjunction with a home purchase. At this time, however, only the Federal Housing Administration (FHA) has issued guidance regarding the monetization of the first-time home buyer tax credit in conjunction with FHA-insured mortgage loans.

7. Can this short-term loan be applied to the minimum 3.5% downpayment required by my FHA loan or is it only available above and beyond the initial downpayment required?
If an FHA-approved lender or state housing finance agency is purchasing a tax credit and therefore making a short-term loan that is secured only by the repayment of the first-time home buyer tax credit, these funds cannot be applied to a downpayment in lieu of the home buyer’s funds. A home buyer still has to provide the 3.5 percent downpayment from his or her own funds. The money from the short-term loan can be used to pay closing costs and prepaid expenses, such as escrows for taxes, insurance, and community association assessments. These funds could also be used to make a larger downpayment or to “buy down” the interest rate on the mortgage loan.

However, many HFAs are offering tax credit loan programs that offer home buyers a short-term loan backed by the anticipated tax credit and secured by a second lien, which in general will be paid off after the homebuyer receives their income tax credit from the IRS. The proceeds of these loans may be used to satisfy the 3.5 percent downpayment requirement for FHA-insured loans. The National Council of State Housing Agencies (NCSHA) maintains a list of such tax credit loans programs at: http://www.ncsha.org/section.cfm/3/34/2920.

NOTE: The strikethrough text above is text that is currently being distributed from the NAHB that is not accurate according to my understanding of HUD Mortgagee Letter 2009-15. Special thanks to Rhonda Porter (one of the best loan officers in America by the way) for pointing that out in the comments of this post.

8. Who should I contact at my state housing finance agency to urge them to participate in this program if they don’t already do so? What should I say?
The best way to locate information about your state’s HFA is via the Internet. The National Council of State Housing Agencies (NCSHA) maintains a directory of state HFAs at: http://www.ncsha.org/section.cfm/4/39/187
Most state HFA web sites include phone numbers and email addresses by which they can be contacted.

9. Is this an interest-free loan or are there fees associated with this type of short-term loan?
If a governmental agency, such as a state housing finance agency, or an FHA-approved lender purchase a first-time home buyer tax credit, they are allowed to charge no more than 2.5 percent of amount of the credit.

10. How can I tell if the short-term loan on the tax credit is being offered by a reputable company?
If the organization is a unit of state government, it is safe to say that it is reputable. Otherwise, a home buyer may want to check with their local Better Business Bureau or through a state or local government’s department of consumer affairs.

Related Posts

• Are Any Lenders Doing The 8000 Tax Credit Monetization?
• New Home Buyer 8000 Tax Credit Down Payment: Answers To Questions
• 8000 Tax Credit Questions and Answers

In my opinion, one of the nice things HUD did in their recent mortgagee letter (2009-15) regarding the use / monetization of the new home buyer tax credit is that they specifically laid out how much “it should cost” the consumer.

According to the Official Mortgagee Letter (2009-15):

“Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer.  In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive.  (Example:  $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)”

Not only did HUD address the issue of costs in the above section, they also mention it toward the end of the letter again.

In order to track the tax credit monetization activities, FHA will require FHA-approved mortgagees to input into FHA Connection the following data:

• Name and EIN of the party who purchased the tax credit,
• The amount of the anticipated credit, and
• The amount the homebuyer paid for the monetization services.

The lender must also collect and maintain in the FHA case file the documentation that validates all of the tax credit monetization data submitted via FHA Connection.

FHA will monitor the purchase of tax credit transactions closely.  Charging of excessive fees or costs in the purchase of the tax credit or increasing other fees or charges in the transaction without FHA approval may result in referral to the Mortgagee Review Board, and particularly with respect to entities that are not FHA-approved mortgagees, referral to the Federal Trade Commission, or referral to the appropriate State Attorney General office, as may be applicable.

If you are a consumer and are considering using an organization to help you monetize the new home buyer tax credit, be aware that there are strict standards in place as to how much it can cost.

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• Are Any Lenders Doing The 8000 Tax Credit Monetization?

Yesterday HUD issued Mortgagee Letter 2009-15 which gave official guidance on how exactly you can turn the 8000 Tax Credit for new home buyers into cash to help you cover your closing costs and possibly part of your down payment.

Home Buyer Tax Credit Monetization: How To Claim The 8000 Tax Credit

While many people have many questions, I decided to cover the most popular ones that I hear.  What people are asking me about the first time home buyer tax credit being used as a down payment:

What Do I Fill Out To Claim The 8000 Tax Credit?

In order to claim your tax credit, you will need to obtain the IRS Form 5404 from the IRS.gov website.

Can You Assign The Tax Credit To Someone Else?

The IRS will only issue the tax credit to the taxpayer, not a third party. You cannot assign the claim for this credit to a third party.

Can You Use The Tax Credit For Your Down Payment?

The hot topic recently is “can I use the tax credit for my down payment?” and the answer to that question is technically yes – but – you cannot use the tax credit to cover the first 3.5% of your down payment, you must come up with that on your own or have it gifted to you from a blood relative.

Once you come up with the initial 3.5% down payment that is required by FHA, if you would like to use the 8000 tax credit to add to that down payment, that is allowed.

Who Will Provide The Bridge Loan / Monetization Of The Tax Credit?

FHA will permit FHA lenders and other approved government organizations or non-profits to issue you a bridge loan in exchange for a second lien on the property.

If I Take This Bridge Loan, Do I Have To Make Payments?

You might, it will depend on who you get the money from.

If payments on the loan are going to be required on the loan before 36 months, then your monthly payment will have to be considered in your debt ratios when qualifying for your first mortgage.

If payments are not required by the lender before 36 months and you decide to just “not pay” by the deadline you agreed on, the loan will convert into a “soft second” mortgage – at which time principal and interest payments will start to be required.

Is It Possible To Get Cash Back At Closing?

No. The tax credit advance, when combined with getting an FHA loan may not result in you getting any “cash back” when buying the home.

How Much Will Using Your Tax Credit For Down Payment Assistance Cost?

Any costs to you from the lender or organization who “purchase” your tax credit are supposed to be “reasonable”. FHA has even went further on this issue – they have said that any amount charged to you over 2.5% of the anticipated credit are considered excessive.

As an example, if you were going to receive a $6,000 refund, after all fees associated with the transaction, it should not cost you more than $5,850.

If You Wish To Use The $8000 Tax Credit For A Down Payment or Closing Costs:

If you are planning on using the 8000 tax credit for part of your down payment or closing costs, be ready for these things to happen when getting your file ready:

1. You will be required to complete the IRS Form 5405
2. The lender will contact your employer and review your pay stubs to confirm there are no outstanding garnishments
3. The lender will ensure that you have no unpaid student loans or other debts that could offset the 8000 tax credit – including IRS debts
4. The lender will have to validate that all requirements to receive the tax credit have been met

Other Resources:

HUD Official Announcement

Official Mortgagee Letter 2009-15

Related Posts

• Are Any Lenders Doing The 8000 Tax Credit Monetization?
• Monetizing 8000 Tax Credit for New Home Buyers: Popular Questions and Answers
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• 8000 Tax Credit Questions and Answers

You remember the feeling.

Remember back in high school when your teacher announced a pop quiz and you didn’t study the night before because you were hanging out at your friends house watching the A-Team?

You know the feeling and you can describe it in two words. (hint: the first word is “Oh”)

That is how I felt yesterday when I learned about the possibility of the 8000 tax credit being used for a down payment as mentioned by HUD Secretary Shaun Donovan in a prepared speech.

Apparently it is now being called a “bridge loan” today and details are still very sketchy as to what exactly is going to become official.

My disclaimer at this point is that to my knowledge, things can still change with this thing, and I promise to keep you updated since I opened this can of worms. Also, rant ahead.

A bridge loan?

You have to be kidding me.

The term “bridge loan” is a term that is used by MBA’s when describing the way they are financing a company. It is right up there with words like “mezzanine financing, tranches, series A, B, C rounds, cap tables, convertible debt” and “warrants”.

It is not a term that you use when handing out a loan that has financing terms worse than a payday loan and could be considered criminal if not cloaked in the right light to someone who works as a manager at the local Kentucky Fried Chicken and probably can’t afford the house he is buying in the first place because he is one missed paycheck away from being late on his mortgage.

The first “nonprofit” group in America to cloak their greed in public?

The Memphis Area Home Builders Association.

From what I can tell, here is how the mechanics of the “bridge loan” program work if you live in Memphis and want to buy a $100,000 house with a “bridge loan”.

You don’t have the $3,500 for a down payment on an FHA loan.

You borrow the $3,500 from the “non-profit” arm of the Memphis Area Home Builders Association and agree to pay them a “service fee” of $500.

The non profit then handles the paperwork needed for the amended tax return and bank account setup to handle the arrival of the $8,000 tax credit.

TRANSLATION: “We are going to loan you the money, you are going to pay us five-hundo right up front. Then we are going to have you sign over your tax refund check to us and we will set up a separate bank account with us as signers so that we can be sure we get our money back from you when the government wires the money into the account.”

This is possibly the greatest LEGAL business scam I have ever heard of — the only thing that I can find wrong with it is that the MBA guy who came up with it used a term he was familiar with like “bridge loan” to describe it. For his target market, he may have been better served to have called it “a little get-you-by” money or maybe even “Obama money” so customers knew who to vote for in the next election.

Let’s do the math.

Loan out $3,500, collect $500 up front and get $3,500 90 days later (that is being very generous – it could take days or even weeks to get the money back).

The above transaction described means that conservatively this transaction should generate north of about a  60% interest rate on an annualized basis.

HOLY HIGHWAY ROBBERY. TO SOMEONE WHO CAN’T AFFORD IT.

Sounds exactly like something called a “tax refund anticipation loan” to me. Google “Tax Refund Anticipation Loan” and see what the financial wizards have to say about those things.

But what do I know.

I am just a loan officer.

Who hands out free money to people because all of the smart people who make the rules tell me that I should.

I think that I am going to go start a non profit.

Heck, who knows – maybe this will be the silver bullet that turns the market around.

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• Are Any Lenders Doing The 8000 Tax Credit Monetization?
• New Home Buyer 8000 Tax Credit Down Payment: Answers To Questions

Can you use the 8000 tax credit as a down payment for your home?

Not yet.

But that may change soon.



Yesterday, Secretary of Housing and Urban Development Shaun Donovan gave a prepared speech at the National Association of Realtors Real Estate Summit. He said something that was probably beyond interesting when he mentioned that FHA was currently working on a proposal that may involve people being able to use the 8000 tax credit as a down payment.

An excerpt from that speech regarding FHA’s position on the 8000 tax credit being used as a down payment:

And we are taking action to further help the housing market recover. I’m excited to announce here at NAR that FHA’s policy on the “monetization” of the first-time homebuyer tax credit will soon be published. I know that you’ve been waiting anxiously to hear FHA’s position on the matter. We, like you, believe that this new tax credit is not only a tremendous opportunity for first-time homebuyers, but also an enormous benefit for communities struggling to deal with an oversupply of housing. According to estimates by the National Association of Home Builders, this new tax credit will stimulate 160,000 home sales across the nation – 101,000 of which will be first time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first time buyer purchased their home.

We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a downpayment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to “monetize” the tax credit through short-term bridge loans. 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 to receive this additional benefit. FHA will be publishing the details shortly.

Enabling first time homebuyers to use the 8000 tax credit as a down payment would be a big win for the market – it would allow many more people to move into a home who currently may not have enough for a down payment.

We will be sure to keep you posted on developments in this situation as the happen.

(h/t Mark Madsen at MyFHAMortgageBlog for sharing the video about the 8000 tax credit being used as a down payment and the guys at ThinkBigWorkSmall)

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