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:
- You will be required to complete the IRS Form 5405
- The lender will contact your employer and review your pay stubs to confirm there are no outstanding garnishments
- The lender will ensure that you have no unpaid student loans or other debts that could offset the 8000 tax credit – including IRS debts
- The lender will have to validate that all requirements to receive the tax credit have been met
Other Resources:
Official Mortgagee Letter 2009-15
{ 19 comments… read them below or add one }
How does this apply to closing costs? How soon can we apply for this?
How long will this process take?
Can I claim and receive the $8000 tax credit before April 2010? If so, does that $8000 have to be applied to the down payment?
when will this tax credit of 8000 end?
What are the qualification perameters regarding student loans for this tax credit? Thanks!!
I can’t find a lender who is doing the $8000 at closing does anybody know who is. Because I have a family member I can borrow money from but our realtor can’t find a lender who is doing it.
Does anyone know if the 8k downpayment is only used for FHA loans?? I am getting a USDA loan… can i use it for that? If so does the 3.5% rule still apply since USDA is 100% financed?
@Faith,
The tax credit is available to you no matter what kind of loan program you use to finance your house.
In your case, with the USDA loan program, you won’t need to put 3.5% down because the USDA loan program offers 100% financing.
Justin
Can you still recieve the tax credit if you perchase a for sale by owner or owner finance??
@ Kendra,
Yes. To my knowledge, it doesn’t matter who you buy the house from or how you finance it.
Be sure to double check with your CPA!
Justin
Im stressing our Closing costs, as we have 10000 and our buying a 170,000 home. Will this be enough for closing costs and down payment? We are doing an FHA 203k. If it wont be enough how easy is it going to be to do the Bridge loan? We wont close until september so we are going to try to save as much as we can by then.
@Nicole,
$10,000 in total closing costs is probably right about what closing costs and a down payment would be for a $170k loan — but the way that you want to know for sure is to get a Good Faith Estimate from your loan officer.
The Good Faith Estimate will be a breakdown of your down payment and closing costs.
The bad news is that if you *need* to do the bridge loan to use your $8000 tax credit, I am not aware of an organization who is doing this in Arizona right now.
Justin
can first time home buyers buy from sellers who are willing to finance the property to them, if so how does it work and what is needing to be done!
Can the 8,000 tax credit being used towards buying a foreclosed home?
@Crissy,
Thanks for stopping by!
Yes. If you qualify as a new home buyer it won’t matter if the home has been foreclosed on or not — you will qualify.
Justin
My husband and me own a home and want to buy a condo for our son who is going to college and we want to co-own it. Would my son be considered first time home buyer, if the condo is in his name and can he be eligible for the 8000 dollar credit . Please advise
My wife and me own a townhouse and want to by a house for my mom , she is retired and she dont sing for any income taxes , if we want to co – own it and the house is in her name , can she be elegible for the 8000 dollar credit? How can she be elegible without 1040 taxes?
I’d like to know if Home Grants given by the govt are similar to the 8,000 tax credit. Would you be able to use both if you received both?
Who are the non-profit agencies doing the bridge loans?
Thanks
Mike
I am in a panic. I married in 9-09 and we filed married but separte on our 2009 taxes. Per the 5405 form if you file married but separte you can amend for $4000. But the problem is, the house is totally in my name (the bank told us it would be better to run everything off my much better credit) so my husband didnt technically buy a house. So are we out $4000? What can we do to get the full $8000?? Thanks