Real Estate Search Direct

Have you been trying to figure out how to come up with a down payment for a home?   Are you interested in using the first time home buyer tax credit to help you come up with a down payment?  Lately I have been getting the same question over and over lately.

“Can I use the first time home buyer tax credit for a down payment?”

The answer, technically, is no you can’t.  

When Congress drew up the legislation for the first time home buyer tax credit, they wanted to make it something that would enable people to buy a home.  But they weren’t able to figure out how to get the money to the closing table at the time of closing. 

The challenge they found was that since only first time home buyers with purchase transactions closing before December 2009 are eligible, and the IRS handles the tax credit,  the IRS would have to be involved in the closing in order to verify the transaction and provide funds for the transaction.

The IRS simply doesn’t have the capacity to be involved so many real estate transactions. 

Until last month the only remedy was to get a personal loan to cover the down payment.  Normally, lenders would not allow such a personal loan to be used for a down payment because the loan would affect the buyer’s ability to repay. 

Because of the first time home buyer tax credit, some lenders made exceptions to the normal “seasoning” requirement of the down payment.  Seasoning means the buyer could show proof of having the down payment funds available over the past few months.

So the tax credit did enable people to get money for their down payment when using conventional financing that involved a 10% or more down payment.  But people who can’t afford a 10% down payment, even with the tax credit were out of luck until now.

As of the May 29, the FHA announced that they will allow lenders to provide a bridge loan for the down payment that will be repaid with the first time home buyer tax credit.  With FHA financing, this means the down payment can be as low as 3.5% of the purchase price. 

With up to $8000 from the first time home buyer tax credit you can now purchase a home for up to $228,000 as long as you can afford to pay the closing costs. 

So from now until the end of November is a great time to buy a house.  Prices have fallen and interest rates are at historic lows.  Now the first time home buyer tax credit helps more than ever, as it is easier than ever to apply it to a down payment and closing costs. 

The National Association of Realtors reports that sales have increased for the month of May by 2.4 percent over April.  There were even more sales expected based on pending sales, but a trend has emerged in the industry.  Recently there has been a rash of pending transactions that are delayed or canceled due to faulty appraisals.

You can reduce the risk of a purchase transaction falling apart by making sure your offer is not too high.  It’s less likely to have an appraisal problem if the value of the home is clearly more than the offer price.  It also helps protect you as the buyer against decreases in property value. 

To keep up to date on information that can help you avoid problems in your purchase transaction and help you get the best deal possible subscribe to updates below.  You will also be enrolled in a free course on home buying in today’s market.