IRS and HUD Lock Horns Over Tax Credit
FHA LOANS, HOME LOANS, INDUSTRY NEWS, SHASTA COUNTY, TIPS FOR BUYERS
May 21st, 2009
Over the past week or so, the Department of Urban and Housing Development (HUD) has been working on a plan to allow buyers to use the $8,000 tax credit immediately to pay for their downpayment and closing costs. The Internal Revenue Service (IRS) has said not so fast.
Now HUD is pushing forward with their program and wants the IRS to step aside and allow the rule change to move forward. Details are skectchy, but it appears the program will allow buyers to borrow against the tax credit then repay the loan when they receive their tax refund. This resembles a “bridge loan” in real estate jargon.
Other states that have already implemented similar programs include Colorado, Missouri, New Jersey, Pennsylvania, 
Tennessee and Washington. The impetus for these programs was to infuse cash quickly into their housing markets by creating additional options for first-time homebuyers short on cash.
In the event the borrower fails to repay the bridge loan, the debt morphs into a 10-year-fixed-rate mortgage with an interest rate 1/2 % higher than the primary mortgage. Thus far, most of the buyers that have used this program in other states have repaid the loan upon receipt of their tax refund. Some states do not allow the buyer to use the entire $8,000 tax credit in case they have some tax liability.
This could be a big help for homebuyers who, according to the National Association of Realtors, typically have only 4% of the loan amount they qualify for saved. In Redding/Shasta County, where the current median price is $180,000, having access to $8,000 would make the difference between buying a home or being locked out of the housing market for many first-time homebuyers.
Prospective buyers that have good credit and a stable job but little or no savings could benefit from this rule change if adopted. Buyers would only be able to utilize FHA financing to take advantage of this program.
Contact me if I can be of assistance.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
CORNER OF COURT AND PLACER
