According to the Obama administration, first-time home buyers will soon be able to use the $8,000 tax credit as cash for use as a down payment and/or for closing costs if the buyer uses Federal Housing Administration (FHA) mortgage financing.
In a statement issued on May 29, the Department of Housing and Urban Development (HUD) clarified that buyers taking out FHA loans via private lenders would need to invest some of their own funds towards the minimum 3.5 percent down payment.
If your loan is obtained through a state housing agency that currently offers a program for tax-credit monetization, you will be able to take advantage of a bridge loan which can be used for a down payment. States with tax credit loan programs include New Mexico, Missouri, Delaware, Pennsylvania, Tennessee, Kentucky, Idaho, New Jersey, and Ohio.
These tax credit loan programs are very similar in nature with low-interest rates, or no interest short-term second loans secured by the property. If the $8,000 tax credit proceeds are not used to pay the loan off in full, the loan is converted into a long-term second mortgage.
The recent news from the Obama administration has many in the industry excited that buyers can now use the $8,000 tax credit, or however much each buyer qualifies for, for escrow fees, settlement fees, larger down payment, or for “buying down” the interest rate, which helps to reduce the monthly payment amounts.
In order to take advantage of using the $8,000 tax credit for down payment and closing costs, the buyer must not have owned a principal residence during the past three years and your household gross income cannot exceed $95,000 (single taxpayers) or $170,000 (jointly filing taxpayers). The contract on your new home must be written before November 30, 2009, and your loan must be through an FHA approved lender.