Have you been waiting for the right time to buy a house? Does an $8000 tax credit sound like a good incentive to buy now? Many factors in the real estate market are convincing people to get into a new home this year.
Homer Buyer was convinced that the record low interest rates combined with the $8000 tax credit make it a great time to buy.
Homer wanted to buy, but coming up with a large enough down payment was his biggest challenge. When he learned about the tax credit being offered to first time home buyers he thought it might be of some help. Can the $8000 help you buy a home?
When Homer learned about how to receive the tax credit, it became obvious that there was no way to use it as a down payment. He would not be eligible to apply for the credit until after the purchase transaction closed. He would, however, be able to file an amended 2008 tax return and get the $8000 within a short time after closing.
It was debated in Congress how to make the $8000 tax credit available to be used as a down payment, but in the end they could not find a way to manage this. It would have meant that the IRS would have to have agents involved in each closing and they didn’t have the time or personnel available for this task. It would have made it too much more difficult to buy a house because of delays involved in the processing.
Instead, Homer discovered that he could easily get a personal loan for $8000 to be repaid when he received the tax credit. Normally, lenders don’t accept this type of down payment because it changes the debt to income ratio of the applicant. They want to see that the down payment is “seasoned” meaning the borrower has been saving it for some time.
The lender doesn’t want you to borrow money to make the down payment because that will affect your ability to make your mortgage payment. Any substantial changes in your finances is a red flag to lenders.
But with the $8000 tax credit pending, lenders are now willing to accept a short term loan for this amount as part of a seasoned down payment. If you have friends of family that are willing to make such a loan, given that you will repay them once you receive the tax credit, this could be used for your down payment.
Congress is, however working on a bill which may save the Down Payment Assitance programs. Last year a bill was passed that made these programs unavailable because they could not be combined with private mortgage insurance. A bill HR 6694 in the house is under consideration that will make down payment assistance programs available again for buyers with credit scores of 680 or higher with lowest available interest rates and for buyers with scores of 620 to 680 with a higher interest rate.
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while the tax credit is so awesome, I am still struggling with trying to come up with a down payment so is unfortunate that they couldn’t figure that out.
Chuggin if you’re a first time home buyer there are programs to help you get your down payment in addition to this tax credit. A good broker can help you find a program to get your down payment, especially if you have good credit.
Robert’s last blog post..Mortgage Refinancing Closing Costs
With the current finance situation it is a good time to get into real estate, in Australia we can get around 30 000 dollars in assistance for our first home – if used as a residential property – that you choose to reside in. Sounds like this is similar.
@Robert
Many of the down payment assistance programs were banned by the national mortgage bill signed by President Bush last year, effective October 2008. There is a pending bill (HR 600) that intends to reverse the ban.
However, now there are programs available for FHA mortgages that allow a bridge loan or piggyback loan to cover the 3.5% down payment that will be repaid through the tax credit.
@Jase
I am not sure of the exchange rate or of housing prices in Australia, but 30000 sounds like a better deal than $8000 USD to me. Also the tax credit is limited to 10% of the purchase price so you can only claim the full $8000 if you are buying a primary residence for at least $80,000.
yes,theres some nice ideas here!
With the Obama stimulus package the tax credit amount was raised to $8000 and did not have to be paid back. This money could not be used for the down payment mainly because the borrower would receive the tax credit after the close. However, HUD has come out with a new policy for FHA loans announcing that the stimulus tax credit can be used for down payment on an FHA loan.
Great tip you have there on how to use the $8000 tax credit as a sort of “collateral” in borrowing money for down payment from friends or family. Even with the tax credit as an incentive, many people still cannot afford a 20% of the purchase price which is the conventional down payment. A loan of $8000 dollars can certainly help. At least you know that you will be able to pay it back once the tax credit is redeemed.
Great post! Very imformative and well written.