Can the $8,000.00 tax-credit be used for a down payment on a FHA morgage loan?
- teran_realtorLv 71 decade agoBest Answer
HUD just came out with a new FHA mortgagee letter (2009-15) which gives lenders the opportunity to start developing "bridge loans" to get you the money prior to closing, then you pay it back.
There are still some problems with it though:
- it cannot be used for "down payment" only for closing expenses and pre-paids. That means you still need to get your own 3.5% down payment.
- The lender cannot balloon the note (get it all paid off at once) any sooner than TEN YEARS! This should have been structured as a 90 day bridge at most.
- If the lender wants to collect payments on it from the first month, the payments must be included in the debt-to-income calculations. This will kill alot of deals.
- To avoid the DTI calculation inclusion, no payments can be required for 36 months - the $8k will be long gone by then!
- Lenders cannot charge more than a 2.5% fee for the loan, so on $8,000 that's about a profit of two-hundred-dollars.
- It will be ALOT of paperwork to do this extra loan - and some people will end up not paying it back.
Bottom line: Obama's team will get much good publicity for "giving the green light" for it to happen. Even though it won't happen. At least not yet.
In the end, it shouldn't happen - it will increase our downward spiral of foreclosures. The government should not be adding to the lists of people who "own" houses with nothing invested in them, and with zero track record of being able to live within their means. It will "boost" the economy for a small while, but will ultimately add to the economic problems.
- Lisa LLv 61 decade ago
There are 10 states that have Bond programs or other HUD approved program that have come up with an alternative. My state is offering a second mortgage (max $4500) that can be used for down payment & closing costs. It is interest free until July 1, 2010. The hope is once you get your credit you will pay it off. However it is not required. Income & credit restrictions apply to this program. Check the IRS web site. It clearly spells out that it cannot be received before you buy & no UW is going to take that as acceptable funds to close since it is fraudulent.
The Mortgagee Letter released today hints at some possible ideas but you will still have to have your 3.5% down payment before you can use the money. It can only be used for closing costs, prepaid items or to buy the rate down or make an additional down payment.
- BLCOHEN529Lv 61 decade ago
A tax credit is not the same as cash on hand. The FHA will demand a cash contribution before giving you a home loan.
Sorry for the news but your idea was most creative.Source(s): Been there and seen that.
- 4 years ago
NO. You never could. You must have CASH in hand for down payment and closing costs to qualify. Then you cannot afford that house so find something cheaper.
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- Beverly SLv 71 decade ago
As a mortgage lender I have heard that they are trying to get this through- however the stipulations the lender must go through are so difficult that most will refuse to do it. Lenders have the choice on whether to do this or not. I don't know of any that will be willing to go thru the additional trouble, expense & hassle - besides having to wait years for payback. One of those stupid ideas that won't work.
- Helen, EA in PALv 51 decade ago
Since you must OWN the home before you get the credit, there is no way that can work in theory.
Helen, EA in PA
- Expert8675309Lv 71 decade ago
Absolutely not...you don't qualify for the tax credit until AFTER the transaction closes.