WASHINGTON – May 29, 2009 – The U.S. Department of Housing and Urban Development (HUD) released more details today about its program to help first-time homebuyers use a tax credit as part of a downpayment.
HUD announced the program on May 12 at the National Association of Realtors® Housing Summit. In the interim, HUD posted an announcement and then immediately took it down, leading to speculation that the program would be pulled. In response, HUD said the rules had simply not been finalized, and the original announcement had been posted in error.
“We’ve been eager for word from the federal government since the new FHA down payment assistance plan was announced, and even more so after the program details were first published and then quickly pulled,” says John Sebree, FAR vice president of public policy. “Luckily, that turns out to be a minor setback and there will be a federal down payment program to complement the $30 million we were successful in securing in the Florida budget.”
The most significant change involves the amount of down payment required by qualified first-time home buyers. FHA mortgages require a 3.5 percent down payment, and the $8,000 tax credit cannot be used to override that requirement. Once the 3.5 percent down payment requirement has been met, however, the tax credit can be applied to additional costs, including a higher down payment, paying points to lower the mortgage rate, and/or closing costs. Lenders will treat the tax credit money as a second lien on the home until it’s paid back.
“Mortgage industry leaders have indicated that this type of product may not be immediately available to consumers,” says Sebree. Since lenders will oversee the tax credit loan, they must create internal programs to handle the process.
Lenders have some flexibility on payback requirements for the upfront loan of the tax credit, though HUD also created rules to protect homebuyers from onerous terms. To read the complete overview in Mortgagee Letter 2009-15, go here.
© 2009 FLORIDA ASSOCIATION OF REALTORS®
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