The ""Federal Housing Administration"":http://www.fha.gov (FHA) laid out the details of a new policy [""Mortgagee Letter 2009-15"":http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm ] on Friday that will allow first-time homebuyers to apply the $8,000 federal tax credit toward the purchase costs of an FHA-insured home. HUD Secretary Shaun Donovan said he expects the action to stimulate home sales across the country.
The American Recovery and Reinvestment Act of 2009, enacted under President Obama, offers homebuyers a tax credit of up to $8,000 for purchasing their first home before December 1, 2009, but the credit can only be accessed after filing an amended tax return with the Internal Revenue Service (IRS). However, the new FHA rules allow first-time homebuyers using FHA-backed financing to obtain a short term loan from state housing finance agencies and certain non-profits for 10 percent of the home's price, up to the full amount of the tax credit.
Homebuyers must come up with the initial FHA-required 3.5 percent downpayment themselves, and can then use the tax credit loan to make a larger downpayment or cover other closing costs - which in turn could help them qualify for a lower interest rate. The loan is repaid a few months later, after the buyer receives the tax credit from the IRS.
Donovan called the tax credit downpayment a win for everyone and an important step toward accelerating the recovery of the nation's housing markets. ""Families will now be able to apply their anticipated tax credit toward their home purchase right away,"" Donovan said. ""[The new tax credit allowance] 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.""
Donovan added that the agency was also putting safeguards in place to ensure homebuyers are protected from unscrupulous lenders. He said that unlike seller-funded down-payment assistance, which was a vehicle for abuse, the new program will allow homebuyers to shop for the best home price and services using their anticipated tax credit.
For every FHA borrower who is assisted through the tax credit program, FHA said it will collect the name and employer identification number of the organization providing the service, as well as associated fees and charges. The agency said it will use this information to track the business closely and will refer any questionable practices to the appropriate regulators.
According to estimates by the ""National Association of Home Builders"":http://www.nahb.org, the administration's homebuyer tax credit will stimulate 160,000 home sales across the nation - 101,000 of which will be first-time buyers who will receive the credit, and 59,000 existing homeowners who will be able to buy another property because a first-time buyer purchased their home. Given FHA's current market share, HUD estimates that thousands of families will be able to snag their American dream by applying the anticipated tax credit toward their purchase of an FHA-insured mortgage.
Some individual states, including Colorado, New Jersey, New Mexico, Ohio, and Pennsylvania have already instituted their own programs which provide downpayment loans for the federal tax credit. Home builders and Realtors alike have been strong proponents of a more widespread initiative, such as has been put in place by the FHA.
Lawrence Yun, chief economist for the ""National Association of Realtors"":http://www.realtor.org (NAR), says he expects to see more buyers step off the sidelines and enter the market now that they can use the $8,000 tax credit as a downpayment. While he doesn't anticipate an immediate pickup in the coming months, Yun believes early summer will be a critical indicator of homebuyers' response to the new allowance.
""The home buying process takes time,"" Yun said. ""This summer will gauge the success of the first-time homebuyer tax credit.""
Several House lawmakers have expressed their support of the homebuyer tax credit and recently introduced bills that would expand its benefits. NAR said it commends these individual efforts but has not endorsed any particular approach, suggesting that taken together, all three bills would have advantageous effects on housing conditions nationwide.
Rep. Eddie Bernice Johnson (D-Texas) has introduced H.R. 2606, which would offer the credit to all homebuyers, not just first-timers. The bill also extends the credit through the end of 2010 and eliminates the repayment mandate applicable to the $7500 tax credit from 2008.
H.R. 2619 has been put forth by Rep. Kenny Marchant (R-Texas). Marchant also wants to make the credit available to all purchasers and push out the expiration date, to June 30, 2010. In addition, this bill provides a temporary $3,000 tax credit that would refund the closing costs associated with refinancing a mortgage, as long as the new loan amount was no more than the original outstanding balance.
Rep. Ron Kind (D-Wisconsin) has proposed H.R. 2562, which would extend the tax credit through December 1, 2010, for those homebuyers who served in the military for at least three months during 2009.