FHA Mortgage Expert - Tri-State Area - New Jersey/PA/Delaware

Topic : $8,000 tax credit for first time homebuyers - And no, I am not trying to beat a dead horse. This post is timely and very important because of the comments and e-mails that I have been receiving. I want to share with you a list, the legal ways that the borrower can receive these monies.

As many of us know, you can't use the actual $8,000 tax credit for your downpayment. The IRS even lists this in their instructions. Please read what happened to the Tax Credit : The $8,000 tax credit as a downpayment - GONE - 

The second issue? It is fraud to use the tax credit monies as your downpayment. Please read : FRAUD ALERT : Advice on the $8,000 first time homebuyers tax credit.

Here is the basic issue about whether or not you can use the tax credit as your down payment. You can't get the money ahead of time from the IRS to use it for your downpayment. You can get other monies ahead of time from other sources to use as your downpayment, and then apply for the $8,000 tax credit. But you can only apply for the credit after you buy the house. The IRS states this on their web site and in their instructions. The instructions and form 5405 for the IRS Tax Credit  Here is what the IRS says in a questions & answers section :

Q. I am in the process of buying a home. I expect to close the deal before December 1, 2009. Can I claim the first-time homebuyer credit now? That would allow me to use the refund for a down payment.

A. No. You may not claim the credit in anticipation of a purchase that has yet to happen. Until you have finalized the purchase of your home, which for most purchasers occurs at the time of the closing, you do not qualify for the credit.  IRS news release 2009-27, First-Time Homebuyers Have Several Options to Maximize New Tax Credit, contains details for filing options if the home is purchased after April 15, 2009.

So, how can I get the monies before I purchase the home?  Here is a list of your legal options. And keep in mind, the IRS says that you can't claim the tax credit before you buy your home. But read below, there is one way to get part of your tax credit monies before you buy, LEGALLY.

• Saving monies to purchase
• up to 100% of a gift from a relative/family member (FHA loans only)
• From the Federal, state, and local governmental agencies and nonprofit instrumentalities of government (I will spell this out more below. This is about those certain states that will give loans upfront, to be used as your downpayment. This has been the main confusion of discussion.)
• FHA approved non-profits 
• monies from their employer in a form of employee contribution (for FHA loans only)
• monies from secured borrowed funds... IE. borrowing equity from your home to buy another home or borrowing against your car that is free and clear or borrowing from your 401-k, etc, etc
• Reducing your tax withholdings which will allow you more monies back in your pay check. (please read more about this below.)  But this is the only way to legally get some of your tax credit upfront. 

(please consult a CPA, tax accountant, or real estate laywer with further questions & specifics)

Are you in the blues, because you are still so confused?  Here is the breakdown of two main issues that people have been confused about.

  1.  Federal/State/Local programs- My state that I live in is offering a loan or monies for my downpayment. Yes, this is perfectly legal, because it is coming from a State or Local agency. You can also get this money upfront from a non-profit organization. No, not AmeriDream or Nehemiah, yet I am sure they are working on this. But there are other non-profit agencies out there that is not tied to the seller funded DPA's. 

       How does this work? Very simple..... you have to follow the state guidelines and use their financing programs. Yes, some lenders and banks are set up to do these state bond programs, in which the state has attached a second soft lien per se. Meaning if you sell or refinance the home in a certain period, that monies needs to be paid back. But keeping in mind, once in the house, you can then actually apply for the $8,000 tax credit, or what you are allowed to receive.

  2.  Partial Tax Credit monies upfront -  You can actually reduce your tax withholdings with the IRS.  This enables you to receive more monies in your pay check, because you are paying less taxes. You will just owe more at the end of the year. But wait, it can be applied towards the $8,000 tax credit that you can file for. Example :

       You do qualify for the $8,000 tax credit. If you didn't reduce your tax withholdings, you would have had to pay $1,000 to the IRS. But now you do reduce your tax withholdings and you were able to save an additional $3,000 up until the day you bought your house, the day that you settled on it. But now you will owe the IRS $3,000, plus your normal $1,000. That equals $4,000. Hey, but you can apply that towards the $8,000, which means that you will still get $4,000 back when you do next years taxes. And keep in mind, you can amend your taxes to receive the monies sooner. Again, speak to a CPA or tax accountant.

CONCLUSION :  So there you have it. In my first blog, you know that HUD rescinded the mortgagee letter, ML 09-15, which stated that some entities could do a bridge loan and give you your tax creditupfront, that you could use it for your downpayment. In my 2nd blog, I tell you that it's actually fraud to use any part of the tax credit as your downpayment, not unless you get it as I explained above. These are the basics and you need to be careful on who gives you what professional advice. Just because they say they are an expert or professional, doesn't always mean that they know what they are doing.  Sorry, but it's the truth.

PS... and for those that say builders in their states are offering this and or that...??. Unless they are using a non-profit setup, it's illegal. Please read what Ken Cook had to say about this. Ken Cook's Comment

My Series on the First time homebuyers $8,000 tax credit - Everything you need to now, from start to finish:

• The $8,000 tax credit for first time home buyers - The basics - What to know about it  - Understanding what the tax credit is all about.

• Use a 6 month gift from a relative to buy a home, thanks to the Tax Credit - How to get creative in using the tax credit and some FHA mortgage guidelines in helping you use this tax credit to your advantage.

• Using First-Time Homebuyer Tax Credits for the Downpayment - It's GONE !!!! - The story of the $8,000 tax credit - The bottom line, you can't use the actual tax credit as your downpayment.. for your downpayment, unless you get it from other sources prior to buying the house and receiving the tax credit.

• FRAUD ALERT - Advice on the $8,000 first time homebuyers Tax Credit - Do you chance it??? - This explains to you that it's fraud if you directly obtain the money from the IRS before you actually purchase the house. Even HUD and many lenders/investors acknowledge this also.

•  The $8,000 tax credit for First Time Homebuyers - How & when to get it legally -  So how can the tax credit be received legally for your downpayment? Just be careful of those that promise other ways not mentioned. I talk about what is illegal in the previous blog above. Please click the link.

• The First time homebuyer $8,000 tax credit has been AMENDED - May 29th, 2009 - Buyer, beware !!! You still need 3.5% of your own money for the down payment. It can't come way of an upfront loan through the tax credit.

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For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger