$8,000 First-Time Homebuyer Tax Credit Can Now Be Applied Toward Purchase of FHA-Insured Home

2 min read

By Anuradha Kher, Online News EditorWashington, D.C.–The U.S. Department of Housing and Urban Development announced today that the Federal Housing Administration (FHA) will allow homebuyers to apply the Obama Administration’s new $8,000 first-time homebuyer tax credit toward the purchase costs of an FHA-insured home. According to Secretary Shaun Donovan, today’s action will help stabilize the […]

By Anuradha Kher, Online News EditorWashington, D.C.–The U.S. Department of Housing and Urban Development announced today that the Federal Housing Administration (FHA) will allow homebuyers to apply the Obama Administration’s new $8,000 first-time homebuyer tax credit toward the purchase costs of an FHA-insured home. According to Secretary Shaun Donovan, today’s action will help stabilize the nation’s housing market by stimulating home sales across the country.    The American Recovery and Reinvestment Act of 2009 offers homebuyers a tax credit of up to $8,000 for purchasing a first home. Families can only access this credit after filing their tax returns with the IRS. Homebuyers using FHA-approved lenders can apply the tax credit to their down payments in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate.  “We believe this is a real win for everyone,” says Donovan. “Families will now be able to apply their anticipated tax credit toward their home purchase right away. At the same time we are putting safeguards in place to ensure that consumers will be protected from unscrupulous lenders.” Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 percent downpayment on the purchase of their homes. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment; but, under the terms of today’s announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate.  Buyers financing through state Housing Finance Agencies and certain non-profits will be able to use the tax credit for their downpayments via secondary financing provided by the HFA or non-profit. In addition to the borrower’s own cash investment, FHA allows parents, employers and other governmental entities to contribute towards the downpayment.   According to estimates by the National Association of Home Builders, 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. Another 59,000 existing homeowners will be able to buy another home because their homes were purchased by first-time buyers.

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