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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.

Comments (2) Jun 23 2009

Are you trying to figure out how to afford to buy a house?  Does an $8000 gift from the government sound like it might help? 

Are you interested in getting the first time home buyer tax credit to help you buy a home?  Are you wondering how you can use the first time home buyer tax credit to make buying a home more affordable?

Homer Buyer was feeling this way.  He was engaged and planned to buy a home for him and his fiancée to live in after their wedding.

Homer and his fiancée wanted to have children so they wanted to buy a house big enough to raise them.  They didn’t want to have to sell to upgrade their home in an uncertain economy.  They wanted to buy something that they could live with for a long time.

The problem was that they weren’t sure if they could afford the down payment for a house of that size.  Homer thought the first time home buyer tax credit sounded like a great way to help afford it.

When Homer got some more information on the tax credit, he was less hopeful. He found that he could not use the tax credit as part of the down payment. As a matter of fact, the deal had to close before he could apply for the tax credit.  How was this supposed to help him afford a home?
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Comments (7) Apr 25 2009

When you are trying to get together a down payment to buy a house, an extra $8000 would come in handy, wouldn’t it?  But can the first time home buyer tax credit be used for a down payment?

Homer and Ivana were looking to buy a house and they could get a mortgage of $350,000 if only they had enough for a down payment.  They had some money saved, and they qualified for FHA so they only had to come up with 3.5%.  Sounds small enough, right?

3.5% of $350,000 is $12,250 and they had only $10,000 in the bank.  They had calculated all their expenses and knew what it was going to cost to buy the house. They also had to come up with closing costs, moving expenses, furniture and appliances.

They were afraid they would have to buy a cheaper house because of the down payment.  They knew that they could borrow $5000 from Ivana’s folks, but the lender wanted to see that they had the full down payment seasoned, and it still wouldn’t cover all of the closing costs.

When they heard about the tax credit for first time home buyers, they had some hope that it might be what they needed to make the down payment.  But they would have to file their 2009 taxes before they could get the credit, wouldn’t they?

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Comments (9) Apr 09 2009

Do you qualify for the first time home buyer tax credit?

If you’ve heard about the first time home buyer tax credit and you are wondering if you qualify, check the requirements below:

• If you (and your spouse, if applicable) have not owned a principal residence in the past 3 years,
• have purchased or will purchase a home that will be used as your principal residence on or after January 1, 2009 and before December 1, 2009,
• and made less than $95,000 Adjusted Gross Income (or $170,000 on a joint return) in 2008.

Home buyers meeting these requirements are eligible for a tax credit on their 2008 income taxes.  The credit will be applied to any income tax owed and any excess will be refunded. What if you have already filed your 2008 income tax?
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Comments (3) Mar 22 2009