$8,000 Tax Credit a Down Payment Option for First-time Buyers!

Springfield, Ill. — First-time homebuyers can now take advantage of a Federal Housing Administration program to allow qualified homebuyers to apply the $8,000 tax credit when purchasing a home. New changes to the federal tax credit will allow buyers to use that money at the front end, as part of their down payment at the time of closing rather than waiting for their tax refund.

This announcement came today from Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development. HUD is allowing FHA lenders, HUD-approved nonprofits as well as federal, state and local government entities to apply the tax credit toward the purchase costs of an FHA-insured home. FHA will now permit its lenders to provide a short-term bridge loan that will let qualified homebuyers use the tax credit to either make a larger down payment above the FHA required 3.5 percent, cover closing costs, or buy down their interest rate.

“The $8,000 tax credit is already a great incentive for first-time buyers who are looking to buy in what is arguably one of the best buyer’s markets in years. Giving them the option of using the credit toward their down payment right now makes it even better,” says Pat Callan, president of the Illinois Association of REALTORS®. “Coming up with an adequate down payment in today’s lending market can be a challenge for potential buyers and these changes to the tax credit will make it easier.”

Details of the modifications are outlined in a mortgagee letter on the HUD Web site at: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-15ml.doc

The $8,000 tax credit is part of the American Recovery and Reinvestment Act of 2009 signed into law in February. Unlike the previous $7,500 tax credit, this one does not have to be repaid to the federal government, making it a true credit.

Only first-time buyers can take advantage of the tax credit and to qualify, the purchaser and his/her spouse may not have owned a principal residence during the three years prior to the purchase. The tax credit is available for home purchases made between Jan. 1, 2009 and Dec. 1, 2009 and can be applied to primary residences including: single-family homes, condos and townhouses.

The tax credit is equal to 10 percent of the purchase price of the home, up to a maximum of $8,000. There are income guidelines on the credit. Individuals with an adjusted gross income up to $75,000 (or $150,000 if filing jointly) are eligible for the full tax credit. The credit is proportionally phased down for those earning more and is not available for those with an income above $95,000 (or $170,000 if filing jointly).

People who buy a home from a close relative, stop using the property as their main home, sell within three years or are nonresident aliens cannot take the credit. If a homeowner claims the credit and does sell the home within three years, the entire amount of the credit will be recaptured on the sale.

Rich and Karen Ayers are licensed Real Estate Brokers in Illinois.  We are experienced Brokers who specialize in Residential and Investment real estate in Naperville, Oswego, Plainfield and the surrounding suburbs of Chicago. We also own and manage multiple investment properties and help real estate investors find, buy, fix, rent and sell their investments. Visit our website at www.AyersTeam.com or receive our blog via your RSS Feed or in your email.

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