FHA To Allow New Home Buyer Tax Credit To Be "Monetized"

Friday morning was a first for me – I reported to the courthouse for grand jury duty.

I had never been called for jury duty before, so I thought it might be fun. I reported to the courthouse and was waiting in the juror-waiting-room and I saw quite a few “tweets” on Twitter about how FHA issued a mortgagee letter stating that homeowners could now monetize their new home buyer tax credit when buying a home rather than wait for their tax refund to come from the IRS.

So I was stuck in the jury waiting room when HUD finally issued an announcement for something that everyone has been wondering about for at least the last few weeks.

Katie did an excellent job of announcing and covering this plan, but I figured that it was big enough that we could talk about it in at least one more blog post.

Key Highlights Of New Home Buyer Tax Credit Monetization Plan

• FHA will allow approved organizations to “monetize” the tax credit for new home buyers by helping them turn their future tax credit into money they can use for closing costs / down payment
• FHA issued guidelines about how the program will work and how much it should cost
• New home buyers will still need to have the initial 3.5% for their down payment

Using The 8000 Tax Credit For Your Down Payment

One of the most popular questions is “can I use the 8000 tax credit for my down payment?” and the answer officially is YES — but only after you have paid the initial 3.5% down payment on your own. In other words, you can’t use the 8000 tax credit for the first 3.5% of the down payment, but if you wanted to use the 8000 tax credit for a down payment over and above the 3.5% required for an FHA Loan, you can.

From the official HUD announcement:

Pursuant to 12 U.S.C. 1709(b)(9), the homebuyer’s downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity).  Accordingly, the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs.

Using the 8000 Tax Credit For Closing Costs

You can use the 8000 tax credit for closing costs that are normally associated with buying a home. Lender fees, title fees, inspection fees — these are all “normal” closing costs and you can use the 8000 tax credit monetization plan for these costs.

How Much Does The Tax Credit Monetization Program Cost?

In my opinion, HUD did a nice job of making sure that the costs for this program are reasonable. According to the Mortgagee Letter:

Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer.  In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive.  (Example:  $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)

Other Resources

I am sure that there will still be many, many questions about this program — so here are a few resources that may be of help. Also, don’t forget to ask a loan officer at a FHA approved lender — they should be very helpful when trying to understand exactly how this program works.

HUD Official Announcement

Official Mortgagee Letter 2009-15

New Home Buyer 8000 Tax Credit Down Payment: Answers To Questions

Oh, and for those of you who were wondering how jury duty went — I was excused from jury duty after I told the judge:

“Your Honor, I am a local loan officer and I have a family. My employer doesn’t pay me for jury duty – in fact they don’t even pay me unless I close a loan and if I am selected to serve on the jury for six months, I worry that one wife and two kids might end up starving to death after they kick me out of the house…”

Dismissed.