FHA Announces Plan to Allow the First-Time Homebuyer Tax Credit to be
Accessed for Downpayments
This Federal Housing Administration announced today that it would permit its
lenders to allow homebuyers to apply the $8000 first-time homebuyer tax
credit to their down payment through the use of secondary financing which
can be obtained from a government agency (see HUD-4155.1 REV-5, paragraphs
1-13 A and B) or an FHA-approved nonprofit (a list of FHA approved
non-profits can be found at:
http://www.hud.gov/offices/hsg/sfh/np/np_hoc.cfm).
Previously, the credit could only be accessed at the time the homebuyer
completed their tax return. FHA now permits homebuyers who finance their
purchase with an FHA loan to access the credit at closing through the use of
a short-term loan or "secondary financing".
The secondary financing works as follows:
* The tax credit advance, when combined with the FHA-insured first
mortgage may not result in cash back to the borrower. The second lien may
not exceed the total needed for the downpayment, closing costs and prepaid
expenses.
* The tax credit advance must provide that if the borrower does
not repay the amount borrowed by the designated deadline, that principal and
interest payments begin automatically.
* If payments on the tax credit advance are required, they must be
included in qualifying the borrower and, when combined with the first
mortgage, cannot exceed the borrower's reasonable ability to pay.
* If payments on the tax credit are deferred, the deferment must
be for a minimum of 36 months in order for the payment to not be included in
the qualifying ratios.
* The tax credit advance second mortgage must not provide for a
balloon payment before ten years.
* The amount that may be borrowed in this manner may not exceed
the anticipated tax credit due the homebuyer based on the computations of
form IRS 5405.
* Fees and charges for the tax credit advance loan are not to
exceed a nominal amount necessary for preparing and administering the loan.
The tax credit is available to first-time homebuyers, including those who
purchase manufactured homes. For more information, contact Tom Beers at
<mailttbeers@mfghome.org> tbeers@mfghome.org or contact FHA directly at
1-800-CALL-FHA (1-800-225-5342).