Tax Credit

WASHINGTON — The Obama administration has now put out official word: Starting soon, first-time home buyers nationwide will be able to turn their $8,000 federal tax credits into cash for use at closing if they use Federal Housing Administration mortgage financing.

But in its final guidelines to lenders and home buyers issued May 29, the Department of Housing and Urban Development clarified that purchasers obtaining FHA loans through private lenders will have to invest at least some of their own funds — whether from personal savings or gifts from relatives — in the form of a minimum 3.5-percent down payment.

In other words, you’ll need equity in the house to participate. This won’t be a zero-down plan, with one exception: If you obtain your FHA loan through one of the 10 or so state housing agency "tax credit monetization” programs, you’ll be allowed to pay for your entire down payment with the help of a bridge loan provided by the agency. Those bridge loans generally are low-interest or no-interest short-term second liens secured by the property, and convert into second mortgages if they are not paid off with the proceeds of the tax credit.

For FHA lender-supplied cash advances, you’ll be able to use the $8,000 credit — or whatever size credit you qualify to receive — for settlement fees, escrow charges, higher down payments or to "buy down” your interest rate to cut monthly payments.

How will this all work in practical terms? How do you apply? Here’s a quick guide:

To start, you’ll need to qualify as a first-time purchaser under the generous definition permitted by Congress — that is, you cannot have owned a principal residence during previous three years, and household gross income cannot exceed $95,000 for single taxpayers or $170,000 for married couples filing jointly.

To get the process rolling, you’ll have to write a contract on a house you can afford to buy and apply for a mortgage through an FHA-approved lender. That shouldn’t be difficult, since there are more than 12,000 lenders. But get moving on house shopping as soon as possible, since the tax credit program requires all eligible purchases to be closed no later than Nov. 30.


from the washington post