Many of you saw my tweets over the weekend about the $8000 credit and the rumor that it could now be used for you down payment on an FHA loan.
Well, after numerous phone calls to my office broker, my favorite loan officer, and then finally to the Realtor board, I have the answers to your questions.
First, let me briefly explain how the credit works in most cases. You are a first time buyer and you purchase a house. You finance using an FHA loan and you bring 3.5% of the purchase as your down payment to the closing table. After closing you file an amended 2008 tax return and then Uncle Sam mails you a check for $8000. Pretty simple.
The new headlines are claiming that you won’t need the 3.5% at closing but that you can basically “advance” the $8000 credit to use for that down payment. That is NOT true. What can be done is this: FHA will allow some lenders to advance the money, basically as a second mortgage on them home and you can then use the $8000 to pay for closing costs, additional down payment or to buy down your rate. But you still need the 3.5% down payment of your own money- or a gift from a relative.
One concern I have is another option which is to go to some tax prep company and have them advance you the money. This is an unsecured loan and I imagine the costs (interest rate, etc) to give you this money are going to be exorbitant. And you still can’t use the money for the 3.5% down, so please be careful before you allow a lender of any kind to advance you this money.
The bottom line is this: if it sounds to good to be true it probably is. To see the press release Realtor.com about the credit click here.
To read my previous article with more details about the tax credit and who qualifies click here. Tomorrow I’ll be back with another credit condo from this weekend’s Gateway Quarter tour, so stop back then!