Will Uncle Sam Make My Down Payment?
HUD has plans to modify the $8,000 tax credit rules to allow first time homebuyers to get instant down payment assistance.
Idaho home prices are lower than ever, affordability is at a record high, and the Idaho real estate market is rife with distressed properties just waiting for buyers.
The only obstacle for many first time home buyers? Cash for down payments. On average first time buyers have only saved enough money to cover about 4% of the purchase price according to the National Association of Realtors.
As part of the stimulus package, Congress created a refundable first time homebyer tax credit in hope of helping hesitant buyers to take the big step of buying their first home. However, buyers couldn’t collect the $8,000 credit until tax time rather than at closing time when it is needed most.
Thanks to the U.S. Department of Housing and Urban Development that may change! The agency is working on a new plan that will allow Federal Housing Authority approved lenders to provider these new home buyers with the tax credit up front.
“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 down payment,” said Shaun Donovan, HUD secretary, in a speech last Tuesday before the National Association of Realtors.
While Donovan did not reveal many details, it is reported that the plan could be modeled after programs in Colorado, Missouri, New Jersey, Pennsylvania, Washington, and Tennessee. In order to get cash flowing quickly into their housing markets, these states have created “bridge loans”, allowing home buyers to borrow against the $8,000 credit and then repay it with their tax refunds.
Missouri was the first state to launch such a plan, by rolling out its Missouri Housing Development Commission Tax Credit Advance Loan program on January 14, taking the initiative a full month before Congress approved the stimulus package. Since that time, Missouri has approved over 300 applications for borrowers and closed on 128 of them.
The typical first time home buyer can use the program to augment their down payment when buying their new home.
For instance:
A couple purchases a four-bedroom, three-bath split-level home for $150,000, putting about 6% down. Much of that $9,000 will come from the loan program, which they tapped so they wouldn’t have to drain their reserves. This allows the new home buyers to use the money they might have been saving up for a down payment to help pay for moving costs, or for items needed in their new home.
At closing, these home buyers, like all buyers in the program, would sign for their first mortgage, plus a second mortgage issued by the state. The second note is good for 6% of the price of the home, up to $6,750; while there is a set-up fee, no interest is charged if the debt is repaid by June 2010.
You may notice that in Missouri, borrowers can only access $6,750 of the $8,000 credit for down payments; there is good reason for this. “We wanted them to have a cushion below that $8,000 in case other tax liabilities show up,” said Greg Spurgeon, of the Missouri Housing Development Commission.
Should borrowers be unable to pay off the note, it then becomes a 10-year fixed-rate mortgage with an interest rate one-half percentage point above that of their first mortgages. For example, borrowers paying 6% on their first mortgages would be charged 6.5% on the second.
So far a significant protion of the participating home buyers have repaid their loans; most of the others are expected to do so before the deadline, with the penalty of additional monthly costs added to their house payments as good incentive.
Have questions about the first time home buyers tax credit? There has never been a better time to buy a new home in Idaho. The Idaho real estate market is flooded with attractive, affordable homes, and with these extra plans and credits it is truly a home buyers market. Contact Kecia & Co to find out what experienced Idaho Realtors can do to help you find your new home!
