First Time Buyer Tax Credit: Advance Topic “Monetization”

14 Aug

creditI’m sure by now, everyone has heard about the Federal First Time Buyer Tax Credit. You know, the free $8,000 you can get back at tax time if you purchase a home as a first time buyer? There are a few other pieces of information that are worth a mention. But first, let me recap the basics of the Federal First Time Buyer Tax Credit, aka American Recovery and Reinvestment Act of 2009:

  • The tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
  • The tax credit does not have to be repaid.

  • The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

  • The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.

  • Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

So now that we’ve gone through the refresher, let’s talk about some “advanced” topics regarding the credit. Have you heard of monetization? In relation to the credit, it’s the idea that we can turn the credit into actual cash money. An advance on the anticipated credit. On Friday, May 29, HUD issued Mortgagee Letter 2009-15, which outlines the requirements that must be met in order to monetize the first-time home buyer tax credit.

The tax credit can be monetized in two ways:

  • Qualified individuals (Government) may advance the anticipated credit by creating a second lien (a second “loan” against the property to be purchased).
  • FHA-approved lenders may purchase the anticipated tax credit from a home buyer.

SO LONG AS,

  • The borrower does NOT get cash back
  • The second lien cannot be greater than the sum of the down payment, closing costs, and prepaid expenses.
  • Payments to repay the advance do not have to be counted in the home buyer’s qualifying ratios as long as the payment is deferred at least 36 months from closing.

Which means  you will be able to use the advance to pay closing costs or other expenses, like escrows.

The Downside

The FHA’s required 3.5 percent minimum down payment must still come from the home buyer’s own funds and cannot include any of the money from advancing the credit. Which means you have to get together your own cash for a down payment when using an FHA loan. The only way to get around it is getting a “gift”.  That’s a whole other topic, though. 😉

So as always, I encourage you as a home buyer, to do your homework. Get with a lender and a Realtor. Realize that some people may tell you no along the way, but if you don’t A-S-K, you don’t G-E-T.

Good Luck!

Advertisements

One Response to “First Time Buyer Tax Credit: Advance Topic “Monetization””

Trackbacks/Pingbacks

  1. TIme is RUnning Out! « S A V V Y I N S A V A N N A H - October 28, 2009

    […] to get first time buyer tax credit, real estate agents in savannah, savannah realtors I wrote a blog awhile back that detailed the First time buyer tax credit, and I just wanted to let everyone know […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: