Jun. 3, 2009 - Breaking Tax Credit News

Tax Credit Can Be Used on Closing Costs, However...

I first told you about the ability to utilize the first-time buyer tax credit at the closing table in my posting on May 13th.  Since then, there has been confusion to what HUD would actually allow. 

FHA-approved lenders received the go-ahead to develop bridge-loan products that enable first-time buyers to use the benefits of the federal tax credit upfront, according to eagerly awaited guidance from the U.S. Department of Housing and Urban Development on so-called home buyer tax credit loans.

Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent.  The loans can't be used to cover the minimum 3.5 percent.

Thus, buyers applying for FHA-backed financing with an FHA-approved lender that offers a bridge-loan program can get a bridge loan to bring down the upfront costs of buying a home significantly but would still have to come up with the minimum 3.5 percent downpayment.

New Jersey has developed its own tax credit bridge loan program, so buyers in NJ can monetize the tax credit upfront to cover all or part of their downpayment. This program are separate from what HUD announced.

The first-time homebuyer tax credit was enacted last year--and improved upon earlier this year to help encourage households to enter the housing market while interest rates are low and affordability is high. The credit is worth up to $8,000 and is available to households that haven't owned a home in at least three years. The credit does not have to be repaid, and is fully reimbursable, so households can get their credit returned to them in the form of a payment.

Source: NAR, HUD