You heard it here last!!! Sorry for the delay folks, but it’s partially that we’ve been so incredibly busy and partially that the final (for now anyway) word on monetizing the $8,000 first-time homebuyer tax credit was/is confusing and disappointing. We’re still getting a lot of questions about it from Massachusetts home buyers so I’ve tried to put together the latest and greatest info out there. The basics of how you qualify for the credit are pretty much the same:
- First-time buyer refers to anyone who has not owned a principle residence in the past three years.
- Non-married buyers qualify as long as one person meets the first-time buyer definition. Married tax payers must both be first-timers to qualify.
- The tax credit is equal to 10% of the purchase price, up to a maximum of 8,000 dollars.
- The home must be purchased between January 01, 2009 and December 01, 2009 and remain your primary residence for three years.
- You don’t have to pay it back. (Filing options available from the IRS website).
The confusing part comes into play for those looking to use the tax credit towards their downpayment or closing costs. The basic story is that FHA-approved lenders are able to create an additional loan that would allow you to access this money upfront for the following:
- Assist in covering your closings costs.
- Buy down your interest rate.
- As ADDITIONAL money towards your downpayment.
But the catch is, buyers must still fund a minimum 3.5% downpayment from their own money. The tax credit can be used IN ADDITION to the 3.5% downpayment but CANNOT be used to make up any part of the 3.5%. The other catch is apparently these loans are not easily carried out and assistance is not widely available to say the least. Most lenders and even HUD itself recommend looking into state programs, finance agencies and non-profits that are offering loans against the credit. The official list of state programs is available on the National Council of State Housing Agencies website and unfortunately Massachusetts is not on there Massachusetts is now on there! (updated 7.27.09, see Massachusetts $8,000 Tax Credit Loan for more info.)
When this news first broke I got an email from a very good friend of mine who is looking to purchase in Boston’s Jamaica Plain area where the average sale price is currently around $373,000. I think he speaks for a lot of buyers and he did a great job of summing up my disappointment with all of this when he wrote to me:
So this means the tax credit CANNOT be applied towards the 3.5% down payment? That would effectively eliminate my hopes of buying into this market before the end of 2009. Our “barrier to entry”, as you could call it, is the down payment. We have great credit, steady jobs and income, and can definitely afford some kind of mortgage payments considering what we already pay in rent. That’s not to say we are broke and have no money in savings; we are saving and have been saving, but certainly not yet close to what would be 3.5% of much worth buying. Oh well..
Oh well indeed.
Downloads:
NAR 2009 $8000 Tax Credit FAQ (596.2 KiB, 305 hits)
Tax Credit Uses with FHA Loans (30.2 KiB, 312 hits)
Tax Credit for Unmarried Homeowners (19.6 KiB, 396 hits)
Tax Credit IRS Form 5405 (259.2 KiB, 379 hits)
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