Josephine Godinez, PA
Buying a Home

New Opportunities Available With $8,000 First-Time Buyer Tax Credit

July 18, 2009 by Josephine · Leave a Comment 

Many aren’t aware of the fact that the benefits under the existing $8,000 First-Time Buyer Tax Credit were recently expanded by the U.S. Department of Housing and Urban Development. If you aren’t familiar with the basics of this program, I would encourage you to first read my summary of the $8,000 First-Time Home Buyer Tax Credit.

The expanded program offers the following new benefits:

1. Tax Credit Used as Bridge Loan

The new HUD initiative would enable borrowers to obtain short-term loans allowing them to tap the tax credit before going to closing. “Families will now be able to apply their anticipated tax credit toward their home purchase right away,” Donovan said in a news release. “What we’re doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing.”

2. Tax Credit Used As Partial Down Payment

It should be noted that the tax credit can only be used to fund a portion of the down payment associated with an FHA loan. FHA loans require borrowers to put a minimum of 3.5% of the purchase price down to secure the loan. The tax credit can be used for any down payment amount that exceeds the initial 3.5%. For example, a first-time home buyer purchasing a primary residence for $200,000 would be required to put $7,000 down to secure their FHA loan. Should this buyer wish, he or she would be able to increase the down payment to $15,000 through the tax credit bridge loan and thus lower their monthly mortgage payment.

The administration opted to have borrowers come up with the initial 3.5 percent themselves to ensure that buyers have “some skin in the game,” which may reduce the likelihood of default, says Howard Glaser, a mortgage industry consultant and a former HUD official.

3. Tax Credit Used for Closing Costs

Another new option available to those who qualify for the $8,000 First-Time Home Buyer Credit is the ability to pay for some or all of the closing costs associated with their FHA loan. In the example previously used, the home buyer might be required to pay $4,000 to $5,000 in closing costs as associated with their $200,000 purchase. With the expanded program, the tax credit can cover these out-of-pocket expenses and allow the new home buyer to use his or her own money to improve the property or just keep it saved for a rainy day.

In Summary…

Will the additional benefits cure what ails the economy and the overall real estate market? No, but it does mean that more qualified first-time home buyers will be able to realize their dreams of owning a home. According to Howard Glaser, “Home prices are coming down significantly in some markets, interest rates at historic lows, and now, by addressing cash on the table at closing, I think that borrowers who wouldn’t have otherwise been in the market are going to feel more confident about investing in a home.”

If you’d like to learn more or are ready to begin the search for your very own dream home, please contact me at your earliest convenience. Until then, have a great day!

Josephine Godinez, PA