Can the $8000 tax credit be used towards down payment?
Originally Posted on June 9, 2009 - The short answer is: Yes. There are, however, important details.
On May 29th, 2009, FHA (Federal Housing Administration) released a buletin in which they gave their blessing to lenders, non-profit organizations, and state agencies to "purchase" the right to receive the $8000 tax credit from an eligable home buyer, so the funds could be used towards closing costs, additional down payment, or other closing fees. Currently, as of the writing of this post on June 9th, there are few that have programs to help first time home buyers use the $8000 tax credit towards their down payment and closing costs in the Norman OK, Moore OK, Oklahoma City OK, or Oklahoma City Metro area. I will update this post when I hear of lenders with such a program in the Metro Area.
It might take some time for local lenders and agencies to instate programs for this loan, particularly because there is no national standard -- FHA is requiring each agency or lender to come up with their own program that meets their guidelines, which could take some time. While on the surface it sounds like a stellar idea to use the credit towards a down payment, there are some important Details:
This only applies to FHA guaranteed loans -- if you are financing the purchase of your home conventionally, this information does not apply to you.
The Credit cannot result in money back to the purchaser
This means that if you were planning on using some of the money towards closing costs, additional down payment, and expecting to have some money left over -- that will not be possible.
Cannot be used to cover any of the 3.5% minimum required down payment by FHA
A buyer will still have to come up with the 3.5% minimum required down payment through other sources: non-profit organization, a family member, or an employer. The credit can be used to pay for a down payment in addition to the 3.5%, and can go towards any closing costs, pre-paid items, interest rate buy-downs, or other closing related expenses.
The service provider can charge a fee for buying your tax credit
While it doesn't amount to much, it is important to know that whoever does buy your tax credit from you can charge a fee of up to 2.5% of the tax credit amount (2.5% of $8000 tax credit is $200).
Until you pay the service provider back, they can charge you interest and require monthly payments
They can buy the right to receive the tax credit from you, but that still means that money has left their hands and they can charge interest on it. Essentially, the tax credit will be a second loan against your home until you pay the person that bought it from you. The service provider that buys it from you may require you to make additional monthly principal and interest payments on the loan amount, and they will be included into your qualifying ratios used to calculate your ability to purchase a home (when they calculate your ability to pay, if the service provider requires you to make $200 per month payments on the loan until it is paid and your lender said that you couldn't buy a home that would have your monthly payments exceed $1000, you would have to find a home that would keep your payments below $800 to be able to use the credit in this way: $200 + $800 = $1000).
To read the official publication from FHA, click here.
Please feel free to give me a call if you have any questions regarding the $8000 tax credit, using it as a down payment, or if you have any questions about purchasing your first home in the Norman OK, Moore OK, Noble OK, or Oklahoma City OK area. You can always search for homes for sale in Norman OK, Moore OK, Oklahoma City OK on my website, http://www.OklaHomeSeller.com, or by going directly to my home search page.
Dillard Group Real Estate
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Office: (405) 366-7707