FHA Loans and the 8,000 Tax Credit

June 2, 2009
Matt Isleib

 

                Some clarification on the $8,000 first time home buyer tax credit and FHA mortgages. As I hope by now you are all aware if you are a first time home buyer and purchase a home before November 30^th 2009 you could qualify for a tax credit from the government up to $8,000. Also if you have not owned a home in the past three years you can qualify as well.

                There has been some discrepancy regarding FHA mortgages and the ability to use the tax credit as part of a down payment or closing costs. It has now been answered. HUD, (The U.S. Department of Housing and Urban Development) has clarified that the tax credits can be monetized in new home purchases. Make note that it is for FHA loans only and does not include either Fannie Mae or Freddie Mac loans.

                Of course you always need to read the fine print and with this clarification from HUD there is some “fine print”. The 8,000 tax credit that some qualify for can be used for use of purchasing a new home, however do not think that the government is showing up at your closing with a check for 8,000. The only way to access the money is through secondary financing from state Housing Finance Agencies and certain non-profits. ALSO, the funds cannot be applied to the required minimum 3.5 percent that FHA requires as a down payment. That still has to come from the borrower. The 8,000 can be applied in addition to the 3.5 percent from the borrower. So for anyone who thought that buying a house under 225,000 you could steer around the 3.5 percent down payment and use your 8,000 tax credit not so fast. You will still need to have a down payment. Happy House Hunting!