First-time homebuyers can apply their tax credit of up to $8,000 under the federal stimulus program toward the purchase of an FHA-insured home through short-term loans, U.S. Housing and Urban Development Secretary Shaun Donovan said Friday.
Under the American Recovery and Reinvestment Act of 2009, first-time homebuyers can qualify for the tax credit for purchasing their first home after filing their taxes.
But under a new Federal Housing Administration program announced Friday, state housing finance agencies and nonprofit groups can advance money to homebuyers up to the full amount of their tax credit so the money can be used on a home purchase, either to pay closing costs or to add to a down payment.
“Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate,” a HUD announcement said.
“Families will now be able to apply their anticipated tax credit toward their home purchase right away,” Donovan said in the announcement. “At the same time we are putting safeguards in place to ensure that consumers will be protected from unscrupulous lenders. 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.”
The stimulus tax credit can be claimed on a taxpayer’s 2009 return, or through an amended 2008 return.
FHA will still require that homebuyers pay a 3.5 percent down payment.
HUD cited National Association of Home Builders data showing that the first-time homebuyer tax credit will stimulate 160,000 home sales across the nation, with 101,000 of those sales being to first-time buyers and 59,000 to existing homeowners who be able to sell their home to a first-time buyer.
Click here for details of the program and a link to FHA’s new mortgagee letter.
Mark Harden is a reporter for the Denver Business Journal, a sister publication.