FHA Updates Rules on 2009 Tax Credit and FHA Loan Down Payments
In short; the 2009 First Time Homebuyer's Tax Credit, known to some as the Obama Tax Credit or the Obama First Time Homebuyer's Tax Credit, lets those buying their first primary residence to get a tax break up to $8000. The tax break can only be claimed for purchases made in the 2009 tax year and is paid after the home buyer has filed an income tax return for 2009.
The first round of new FHA rules appeared to let banks offer bridge loans to borrowers so they could use their IRS money as a down payment on an FHA home loan. But further investigation into the rules uncovers a law forbidding banks from offering down payment assistance; these bridge loans could be interpreted as down payment assistance even though the loan is simply to cover the amount of an income tax refund the home buyer would get anyway.
Additional guidance was issued by the FHA at the end of May. The revised rules state FHA home loan applicants can still apply for these bridge loans, but the loans cannot be used to meet the FHA's minimum 3.5% down payment. The money can be used for other expenses or be paid on top of the required down payment; and putting an additional $8000 down on your FHA mortgage beyond the required 3.5% is a good thing. Imagine the reduced interest payments and the money saved over the lifetime of the loan. FHA loan applicants are also allowed to use the bridge loans to pay for closing costs, up front interest payments or other expenses related to closing the deal on an FHA home loan.
For FHA lenders and borrowers alike, May was a very confusing month, but the FHA seems to have sorted out the mess. The rules are clear now--bridge loans are permitted, but the FHA's required down payment must still come from the borrower's own funds. According to the Department of Housing and Urban Development's official site, FHA guidelines are designed to allow people interested in an FHA mortgage to cut their up front costs while requiring the borrower to have a personal investment in the property bought with an FHA home loan.
"In addition to the borrower's own cash investment," a press release at HUD.gov states, "FHA allows parents, employers and other governmental entities to contribute towards the downpayment. Today's action permits the first-time home buyer's anticipated tax credit under the Recovery Act to be applied toward the family's home purchase right away."
For more information on how to apply for a bridge loan towards your expected 2009 First Time Homebuyer's Tax Credit, ask your FHA-approved lender to explain the process.
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