$8000 housing tax credit can now be turned into cash at closing according to FHA
As part of the Obama stimulus plan passed in January, first time home buyers in 2009 are entitled to a tax credit of up to $8000 that they do not have to repay. This tax credit was supposed to be given to the taxpayer after they file their 2009 taxes in 2010, but it seems that a new set of FHA guidelines is allowing many to take the money during closing. Here are some of the details.
First, to qualify for this tax credit you must not have owned a principal residence during the previous three years. However, if you own a second home or rental it is okay. Your household income also cannot exceed $95,000 for singles and $170,000 for married couples filing jointly. You also have to close on your new home by November 30th, 2009.
The FHA's new "tax credit monetization" program allows many state housing finance agencies to provide second mortgages in the amount of the tax credit so that the borrowers can use the money towards the required 3.5% downpayment for FHA loans. These second mortgages are usually low interest and have very short terms.
To check if your state's housing finance agency is participating in this monetization you can go to this website and then contact your local agency if there is a program you qualify for. Essentially this is a form of downpayment assistance by the state government. You do have to pay the money back to your state based on the terms of the second mortgage.
If your state's housing finance agency is not participating in the monetization program it is still possible for an FHA approved lender to give you a cash advance towards your tax credit. However, this cash advance cannot be used towards the 3.5% FHA downpayment requirement, but you can use the money to add to the downpayment, buy down interest, or pay any other type of settlement fees. The lenders will charge a fee for advancing you the money, but the FHA is limiting the fee to 2.5% of the tax credit. This means that the most a borrower would pay for the entire $8000 advance is $200.
I think this program could be very advantageous to people who can responsibly afford a home's monthly payments, but just do not have enough money saved up and cannot possibly save up $8000 in the next 5 months. This especially makes sense in areas where home prices are not very high and a mortgage would cost less than rent after accounting for the "free" $8000. In markets like the Bay Area or Manhattan where $8000 would barely make a dent in the price of the home it makes less sense to take a loan against the tax credit. Additionally, in rapidly declining markets like Florida and Nevada a home might be worth a lot less in a few months anyway so there is no hurry to buy.
Are you taking advantage of the credit? Why or why not? Do you think the government is irresponsible in doling out this credit?