News, updates, and explanations to keep you informed.
The 2009 Tax Break and Your FHA Loan Downpayment
First time home buyers purchasing a home with an FHA loan or going through a HUD-approved charitable agency can use their 2009 First Time Homebuyer's Tax Credit to make their downpayment. The Department of Housing and Urban Development recently announced this new first-time homebuyer perk, which helps millions of FHA borrowers reduce the financial stress of making that first home purchase.
The 2009 tax credit for first time home buyers offers a tax break totaling 10% of the purchase price of a first home with a maximum tax credit of $8000. This homeowner relief program is only for those purchasing their first primary residence, and the amount of an individual tax break depends on the purchase price. Your total tax break may be less if the purchase price is lower. After you are approved for an FHA mortgage, the amount of the tax break can be used for at closing time, presenting much needed financial relief for those with limited funds available to cover closing costs.
HOW TO TAKE ADVANTAGE OF TAX CREDIT MONEY BEFORE FILING YOUR TAXES
U.S. Department of Housing and Urban Development Secretary Shaun Donovan says FHA lenders and HUD-approved non-profit groups have the authority to issue "bridge loans" that cover the amount of the 2009 tax credit. When borrowers get their tax money from the IRS, the bridge loans can be repaid in full. These bridge loans are meant to be short-term, intended only to provide access to the tax rebate money until it's paid to the buyer. Individual tax credit is calculated based on the purchase price of the home, the total is not determined by the total cost of your FHA loan or any other factor. Those who qualify receive 10% of the purchase price as a tax credit in fiscal year 2009, with a cap of $8000 total.
In years past, these kinds of tax credits offered to first time home buyers had different terms than the 2009 version. For the 2009 version, FHA mortgage holders and conventional borrowers do not have to repay the 2009 credit. You are required to pay back the short-term bridge loan with your tax credit; any other portion of your tax refund is unaffected.
FHA mortgages and conventional loans are separate from the short-term bridge loan used to finance the down payment--be sure to ask your lender to clarify the terms of the short-term bridge loan, and how payment should be delivered on the loan covering your tax credit. Make sure you fully understand the terms of the agreement on your bridge loan before signing your name. At press time, specifics on these loans is not clear but the agreement you sign for a bridge loan is just as binding as the FHA home loan itself.
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