Thursday, June 11, 2009

First-Time Homebuyer Tax Credit - Can You Access the Money Sooner Than Waiting to File Your 2009 Tax Return?

By now, most of you have heard of the $8,000 tax credit available to first time homebuyers purchasing a primary residence before December 1, 2009. The question that seems to be on everyone’s mind is whether or not the money can be obtained sooner and if so, what can it be used towards? There have been many announcements and subsequent revisions that have made it all a little confusing. Here is a breakdown of some of the current policies set forth.

At the end of May 2009, HUD announced that it will allow “monetization” of the tax credit. This simply means that the anticipated tax credit can be applied towards the purchase of the home immediately rather than waiting to receive the refund. The guidelines authorize the monetization in a few different ways.

For starters, homebuyers that believe they qualify for the credit are permitted to reduce their income tax withholdings. This will allow buyers to accumulate more cash reserves for a down payment by increasing their take home pay. Individuals must be cautious because if the purchase does not occur, the IRS could impose interest and penalty charges on the repayment.

Some state housing finance agencies and other government entities have introduced programs that will provide homebuyers with short-term loans that can be used towards the FHA minimum 3.5% down payment. Longer term loans that are secured by a second lien on the property are also permitted. The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs that can be found at At this time, Arizona does not have any of these programs available.

In addition, FHA approved lenders are allowed to provide bridge financing to the buyer that is secured by the anticipated tax credit. This amount is permitted to cover closing costs, prepaid expenses and down payments above the FHA minimum of 3.5%. Unfortunately, there are no lenders participating in such programs at this time. The broad consensus in the industry is that these loans are not anticipated to surface in the near future.

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