The Federal Housing Administration had previously announced in early May that First Time Home Buyers would be able to use the (up to) $8,000 tax credit towards the down payment or closing costs of their new home purchase for FHA loans. Later the government revised their position and it looked like First Time Home Buyers would not be able to use the funds in advance.
New guidelines have just been released which now allow First Time Home Buyers to use the tax credit in advance, with the following restrictions:
- The monetizing of the tax credit cannot be used for the 3.5% down payment required by FHA. It can only be used for settlement expenses, or additional down payment funds in excess of the 3.5% or to buy down the interest rate.
- The funds to monetize the tax credit cannot come from anyone who may have an interest in the transaction – the seller, the lender, the real estate agent, the builder, etc.
- The funds to monetize the tax credit CAN come from a family member, any other non-interested party or another finance shop. The limit however is that any finance firm cannot exceed a 2.5% fee (which would limit the interest of any consumer finance agency from participating as an organization to monetize the credit).
- A lien cannot be recorded for the monetized finance amount unless the lender is one of the narrowly approved government sponsored non-profits.
- Repayment of the advance must come from the buyer – the IRS will still send the tax credit to the buyer and the buyer will have to repay the advance to whomever loaned it.
Have questions about how you can monetize the tax credit, contact us.