Can you use the Obama 8000 tax credit for your FHA down payment?
Yes, No, Maybe So.
Last month on May 12th, Secretary of Housing and Urban Development Shaun Donovan created a fervor in real estate and mortgage industry when he announced in a speech to National Association of Realtors that FHA was working on an initiative to allow first time home buyers to use the 8000 tax credit created by the American Recovery and Reinvestment Act of 2009 (Obama 8000 tax credit) for their down payment on a new home. This was followed by a mortgagee letter related to the subject being posted on HUD’s website. Immediately real estate and mortgage professionals began to communicate this information to each other and to their clients. Unfortunately, within a couple of days, FHA retracted the announcement as there were a number of issues with the logistics and legality of the 8000 tax credit down payment plan.
In the weeks that followed, many articles were posted on the web with a variety of information regarding whether or not you could use the Obama 8000 tax credit as a first time home buyer down payment.
There was abounding speculation since FHA was quiet regarding clarification of whether or not a first time home buyer could use the Obama 8000 tax credit as a down payment. Finally, on May 29th, FHA re-issued Mortgagee Letter 2009-15 with details on how the Obama 8000 tax credit could be used by first time home buyers in conjunction with an FHA loan.
The following are highlights of the FHA program for the use of the Obama 8000 tax credit for first time home buyers:
Can the Obama 8000 tax credit be used for a first time home buyer’s down payment?
Yes, but only after the first time home buyer has provided the initial 3.5% FHA down payment. After that, additional down payment funds can come from the Obama 8000 tax credit. To be clear, a first time homebuyer can NOT use the Obama 8000 tax credit to meet the minimum FHA 3.5% down payment requirement.
Can the Obama 8000 tax credit be used to pay for the buyer’s closing costs?
Yes, a first time home buyer can use the Obama 8000 tax credit for closing costs that are normally associated with buying a home (e.g. lender fees, points, title fees, inspection fees, etc.).
How does the first time home buyer obtain upfront funds from the Obama 8000 tax credit to use to help buy a house?
FHA will permit FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, state, and local governmental agencies and instrumentalities to purchase the Obama 8000 tax credit anticipated by the first time home buyer. In other words, one of the aforementioned sources can loan the first time home buyer the money they expect to get resulting from the Obama 8000 tax credit for a regulated fee. In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive. The source of the loan can securitize the loan as a second lien on the house and may choose to require monthly payments or not. The IRS will not allow the second lien to have a balloon payment under 10 years.
How does the first time home buyer request the Obama 8000 tax credit from the IRS?
After the first time home buyer has bought the house …
the first time home buyer can wait until next year and file IRS form 5405 “First-Time Homebuyer” along with his or her 2009 tax return.
the first time home buyer can file IRS form 5405 with his or her amended 2008 tax return.
if the first time home buyer filed for an extension to the filing of their 2008 tax returs, they can submit IRS form 5405 along with his or her 2008 tax return.
Other resources regarding the Obama 8000 tax credit for first time home buyers.
Explanation of the original 7500 tax credit created by the Housing and Economic Recovery Act of 2008.
Summary of the new 2009 Obama 8000 tax credit created by the American Recovery and Reinvestment Act of 2009.
Answers to Frequently Asked Questions about the Obama 8000 tax credit for first time home buyers provided by the National Association of Home Builders.
Source: Best FHA Lender
