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During an address to the NAHB Board of Directors, Housing and Urban Development Secretary Shaun Donovan announced a plan that will allow first-time buyers qualifying for the $8,000 tax credit and obtaining an FHA loan to use the funds at closing for a down payment and other costs.
How it works
A qualified first-time homebuyer working with an lender on an FHA-insured mortgage can sell their tax credit to a FHA-approved mortgage lender, nonprofit organization or government agency. When it comes tax time, that government agency will own the credit and get the refund. The borrower will pay a small fee, up to 2.5% of the estimated credit value up to a cap of $200. The borrowers must come up the FHA required 3.5% down payment from their own funds but can use the tax credit for an additional down payment, closing costs and prepaid expenses such as escrow payments.
Borrowers in Missouri can also work with the Missouri Housing Development Commission to obtain a secondary loan to advance the tax credit. The loan is interest free if fully repaid by June 2010.
Additional Resources
Frequently Asked Questions on Monetization
Explanation of the FHA Mortgagee Letter
HUD Mortgage Letter
Missouri Housing Development Commission TCAL Program
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The plan allows FHA-approved mortgage lenders, nonprofit organizations and government agencies to purchase the tax credit from the homebuyer. Fees on the purchase of the tax credit are limited to 2.5 percent of the anticipated credit with a maximum of $200.
Funds from the credit cannot be used to meet the FHA's 3.5 percent minimum required down payment. Money received by selling the credit can be used an additional down payment above 3.5 percent, closing costs, escrow payments and other costs associted with the home purchase.
The plan also allows state housing finance agencies to make tax credit advances using FHA-insured mortgages. The advances come in the form of a second loan to cover down payment costs, closing costs and prepaid expenses for taxes, insurance and community association assessments.
The Missouri Housing Development Commission was the first in the nation to offer second mortgage bridge loans to advance the tax credit at the time of closing. Missouri's loan program provides an interest-free loan so long as the advance is repaid by June 2010. The program is only valid for buyers who also qualify and use a MHDC-insured first mortgage. While the HUD plan allows state housing agencies to pair a tax credit advance loan with an FHA-insured first mortgage, there is no word whether Missouri will expand their program to FHA borrowers. The Kansas housing agency is prohibited from making similar loans by state law.
The National Association of Home Builders estimate that the monetization of the tax credit will promote the purchase of 40,000 homes. That is in addition to the 160,000 home sales expected to be spurred by the tax credit alone. |
