Using the new-buyer tax credit for downpayment
But not exactly the way you might have envisioned it.
FHA borrowers are required to put at least 3.5 percent down. Well, that won't change. Instead, the "monetized" tax credit -- money upfront rather than a break on your taxes later -- can be added to that downpayment so your monthly costs are lower. Or you can use it on other closing costs or to buy down your interest rate.
As The Wall Street Journal puts it, "the industry could be disappointed by the plan ... because they wanted to allow buyers to use the credit to fund the initial 3.5% down-payment." But it probably comes as a pleasant surprise to the critics who feared the plan would create a new wave of no-money-down buyers.
If you do go for this option, remember that you're getting a short-term loan for your tax credit and you'll probably pay upfront for the convenience. HUD warns buyers to "beware of mortgage scams and carefully compare benefits and costs when seeking out tax credit monetization services."
Here's what the agency says in its letter to lenders:
FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, state, and local governmental agencies and instrumentalities thereof may purchase the tax credit anticipated by the homebuyer.
• The proceeds of the sale of the tax credit may not exceed the anticipated tax credit due the homebuyer ...
• Any costs attendant to the purchase of the tax credit ... must be reasonable and disclosed to the homebuyer. In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive. (Example: $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)
So, folks: What do you think?