So… they say [again] the tax credit can be used towards downpayment?
FHA plan will stimulate new home sales and help stabilize Orlando housing market
Today, while speaking to the National Association of Home Builders, U.S. Housing and Urban Development [HUD], Secretary Shaun Donovan re-announced that FHA will indeed allow homebuyers to apply the $8,000 first-time homebuyer tax credit toward the purchase costs of a FHA-insured home. Donovan said today’s action will help stabilize the nation’s housing market by stimulating home sales… we will see. I think we have a long way to go before this becomes deliverable. Our state of Florida, just passed something of similar nature, but with the credit expiring at the end of Novemeber unless it is extended, the question remains – “how many people will it really help”… you know… anecdotally. <— in honor of the Mortgage Cicerone.
The announcement details FHA’s rules allowing state Housing Finance Agencies and certain non-profits to ‘monetize’ up to the full amount of the tax credit so that borrowers can immediately apply those funds to their down payment. Home buyers using an Orlando FHA-approved lender can apply the tax credit to their down payment in excess of 3.5 percent of appraised value – or towards their closing costs, which can help achieve a low, below market, interest rate. To read the FHA’s new mortgagee letter, visit HUD’s website.
“We believe this is a real win for everyone,” said Donovan. “Today, the Obama Administration is taking another important step toward accelerating the recovery of the nation’s housing market. Families will now be able to apply their anticipated tax credit toward their home purchase right away.”
Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 % downpayment on the purchase of their home. Current law does not permit approved lenders to ‘monetize’ the tax credit to meet the required 3.5 percent minimum down payment, but, under the terms of today’s announcement, lenders can monetize the tax credit for use as additional down payment, for other closing costs, or buy down their low mortgage interest rate. In addition to the borrower’s own cash investment – which appears to still be the standard 3.5%, FHA allows Orlando First-time Home Buyer parents, employers and other governmental entities to contribute towards the downpayment over and above that 3.5%.
This is good news and can help the struggling housing sector. It should be interesting to see how they intend to implement this covertly complex initiative at the street level.