Update5 The Latest On ‘$8,000 Tax Credit As Downpayment’
by Tim Manni
UPDATE5: IT”S OFFICIAL — for the time being at least. HUD announced the finalized details of their plan to allow FHA borrowers to “monetize” the $8,000 first-time homebuyer’s tax credit provided under the president’s American Recovery and Reinvestment Act of 2009. While the tax credit CANNOT be used to meet the downpayment requirement, it can be used to contribute to either a higher downpayment or to pay for closing costs:
Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 percent downpayment on the purchase of their home. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment, but, under the terms of today’s announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate.
Click here to view Mortgagee Letter 09-15 which outlines the details of the initiative.
It’s not clear yet if the $8,000 can be used to pay for the initial mortgage insurance premium. For the time being we’re ignoring HUD’s projections of how many borrowers will benefit from this initiative, but so far the experts seem to think this program will do some good.
“This should accelerate that process — getting them to homeownership sooner. The resulting incremental increase in buyer demand may help promote more firming in the housing market,” said HSH VP Keith Gumbinger.
UPDATE4 (published on 5/27/09): Apparently the reason why HUD pulled Mortgagee Letter 09-15 off their website after Secretary Donovan’s speech was due to an objection by the Office of Management and Budget. According to National Mortgage News, previous reports that the plan is still a “go” are completely accurate.
From National Mortgage News:
HUD took the letter off its website a few hours later — after the Office of Management and Budget objected. Apparently HUD had not consulted with OMB officials on the issue. Meanwhile, HUD has drafted new guidance that is expected to be posted any day now, according to sources.
UPDATE3 (published 05/21/09): According to statements published today in the National Association of Realtor’s (NAR) online magazine, plans to allow the first-time homebuyer tax credit to be used as a downpayment are still on track:
News reports that the federal government is backing away from its plan to permit eligible borrowers to monetize the first-time homebuyer tax credit are off the mark, a spokesperson for the U.S. Department of Housing and Urban Development says.
“The technical details are still being finalized and will soon be published in a mortgagee letter and posted on our Web site,” Lemar Wooley, a HUD spokesperson, told REALTOR Magazine Wednesday afternoon.
Perhaps Mr. Wooley means “re-posted” on HUD’s website. After digging around, we found an unofficial copy of Mortgagee Letter 09-15 — the same letter that HUD had supposedly removed from their site shortly after Secretary Donovan’s speech. We have provided a link to both the speech and the letter below, but cannot verify the accuracy or completeness of the letter, since it came from an unofficial source (please see both below).
UPDATE2 (published 5/20/09 @ 11:26 a.m.): The speculation continues over whether or not the $8,000 first-time homebuyer tax credit can be used as a downpayment. Last week HUD Secretary Shaun Donovan announced in a speech that “We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a downpayment.”
Yet, the information, as described in HUD’s Mortgagee Letter 09-15, has been removed from their website. Today we were able to unearth what appears to be a copy of Mortgagee Letter 09-15. Please note that this came from a non-official (non-HUD) source, so its accuracy and completeness cannot be verified.
Yesterday we published an update stating that the Arizona Republic reported that the secretary’s announcement had been “reversed.” After consulting with the reporter who wrote the story, as well as doing some additional research on our own, it seems as though the program is not technically dead, but rather more likely sidelined for further discussion.
As we continue to learn more about the tax credit as a possible downpayment, we’ll be sure to share it with you.
See Original Post Below (published on 5/18/09):
At the end of April we published a story titled “Can I Use My Homebuyer Tax Credit As A Down Payment?” After consulting with the IRS as well as several mortgage professionals, the initial answer was “no”.
Yet last week, speaking at a daylong session at the National Association of Realtor’s (NAR) Midyear Legislative Meetings & Trade Expo, HUD Secretary Shaun Donovan announced that the first-time homebuyer tax credit could be supplemented as a downpayment:
Under the plan announced by Donovan, buyers can get a piggyback mortgage or an unsecured bridge loan for the amount of the tax credit when they get a Federal Housing Administration-insured mortgage. The piggyback or bridge loan can take the place of a down payment. Typically, FHA-insured loans require a down payment of at least 3.5 percent.
Borrowers will be expected to pay off the piggyback or bridge loans when they claim the tax credit on their 2009 returns next year or their amended 2008 returns this year. To claim the tax credit, buyers have to buy by the end of 2009.
“We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment,” Donovan said.
Perhaps more important than creating the next government-sponsored strategy or initiative designed to grease the real estate market back to health, is developing a coherent, well-thought-out exit strategy. The housing market could face a serious crash if its regulators and participants aren’t prepared to get back to business on their own.
