200,000 could lose out on homebuyer tax credit

Many homebuyers, as many as 200,000 buyers according to CNN Money.com, could lose out on the $8,000 homebuyer tax credit. This is because many people are trying to purchase short sales, buying homes from sellers who owe more on their mortgage than the home is worth. Despite the name “short sale,” these deals often take a long time for the lender to approve. It could be anywhere from two to six months. This lag time could mean that buyers will lose out on the tax credit because their pending deals won’t be finalized by the June 30th deadline. Taking even more time are the home inspections. The average foreclosed home comes with many problems to repair, and fixing the issues takes time, slowing the process even further.

Richard Smith, CEO of Realogy, the parent company of several franchise real estate brokers started warning buyers back in January that short sales may not close in time to take the credit.

Read the full article here.

Bill Would Extend Home Buyers' Deadline for Tax Credit

Despite reports that there was not enough support for a homebuyers tax credit extension, a bill has been introduced in Senate floor to extend the deadline by a few months. According to the Washington Post, the creators of the legislation hope to allow qualifying taxpayers an additional three months to claim the credit.

Senate Majority Leader Harry M. Reid (D-Nev.) co-authored a proposal that would allow those eligible for the tax credit to close on a home by Sept. 30 to give lenders more time to process a crush of applications.

Reid and his co-sponsors hope to attach the measure to a separate bill moving through the Senate that would extend a variety of tax breaks as well as emergency unemployment benefits. But even if senators succeed in attaching the tax-credit initiative, Democrats are still struggling to assemble the votes needed to pass the overall tax bill.

To qualify for the tax credit -- $8,000 for some first-time buyers and $6,500 for certain current homeowners -- buyers must have signed a contract by April 30 and close on the their transactions by June 30.

The National Association of Realtors said many home buyers will not be able to meet the June 30 closing deadline because of the surge in loan volume and delays related to home appraisals and short sales, transactions in which lenders allow struggling homeowners to sell their homes for less than they owe on them.

Continue reading at Washington Post.com…

New Rules Making Tax-Credit Closing Deadlines Tough to Meet

From The WashingtonPost.com:

For thousands of home buyers who scrambled to meet the April 30 federal tax-credit deadline for completed contracts, a new challenge is looming: Can they nail down their mortgage financing and get to closing before the program terminates?

As a result of toughened underwriting standards, confusing new federal disclosure rules, appraisal regulations and a long list of other potential obstacles, meeting that deadline could be harder than expected. In fact, mortgage industry leaders say some buyers who are seeking the tax credits won't get a cent because the clock will run out on them.

Under the extended first-time purchaser and repeat buyer credits -- the former carries an $8,000 maximum amount, the latter $6,500 -- all deals must close by June 30. This shouldn't be a problem for buyers who have already submitted their applications or who apply and are approved in the coming week or two, lenders say.

But credit-seekers who assume that closings can be done in less than 45 days -- as was often the case in recent years -- might be in for an unpleasant jolt. And if a borrower's needed turnaround time from application to settlement is 30 days or less, even the most resourceful lenders might not be able to deliver.

Tax credit end not deterring US homebuyers

While the homebuyer’s tax credit certainly gave the real estate market a jump, according to a new survey, the end of the credit may not be an end to increased sales. Consumer confidence in the housing market has increased along with home prices, which as this Reuters article explains, are both a good sign for the future of real estate.

Among consumers shopping for homes, 65 percent said the end of the tax credits will have little or no effect on their interest in purchasing a home, according to the survey, which was conducted by Prudential Real Estate and Relocation Services, part of Prudential Financial (PRU.N).

But 90 percent of the consumers believe that the tax credits have helped both first-time home buyers and the U.S. housing market overall.

Eligible borrowers must sign contracts by April 30 and close on their loans by June 30 to qualify for the tax credits, which include $8,000 for first-time buyers and $6,500 for home owners buying a new residence.

Consumers remain unsure about the direction of the housing market, but are optimistic about real estate values, with 46 percent expecting prices in their area to increase over the next year. Just 12 percent expect prices to decline, the survey found.

Home Buyer Tax Credits Spark IRS Audits

From SunSentinal.com:

If you claimed a home buyer tax credit, don’t be surprised if your friends at the Internal Revenue Service ask for an audit.

The Associated Press reports that National Taxpayer Advocate Nina E. Olson told a congressional committee Thursday that about a fifth of all IRS audits done by mail in the past six months were for people claiming the credit. The audits can mean major delays -- up to five months -- in getting refunds, AP says.

Lawmakers approved an $8,000 credit for first-time buyers last year to help the beleaguered housing market. It was supposed to expire Nov. 30, but Congress extended and expanded the program. Existing homeowners looking to buy new principal residences now are eligible for $6,500.

First-time and repeat buyers must sign sales contracts by April 30 and close by June 30 to be eligible for the credits. And in case you were wondering, don’t expect any more extensions.

Homebuyer Tax Credits Threaten the FHA

From the WallStreetJournal.com:

A few weeks ago, President Barack Obama signed legislation extending an $8,000 tax credit for first-time home buyers. The refundable tax credit, available even if a family has no taxable income, will enable many more buyers to close on a home. But it also could bankrupt the Federal Housing Administration (FHA) and, by doing so, damage an already weak housing market.

The tax credit was put in place as part of the stimulus package signed into law earlier this year. Initially, it was available only to first-time buyers with a combined income of $150,000 or less ($75,000 for individuals). Approximately 40% of all first-time buyers used the credit in 2009, so extending it was strongly supported by real estate brokers, home builders and their congressional allies.

The extension the president signed makes the credit available to first-time buyers, but also to people who have owned a home for at least five years. In addition, it raises the maximum income for a qualified buyer to $225,000 a year for couples and makes the credit available until mid-2010. (It had been set to expire at the end of this month.)

The problem is that the FHA insures mortgages of homes below certain price levels with such a low down payment that it can be funded solely by the refundable tax credit. And, as we've seen in the recent housing crisis, buyers with no skin in the game are more likely than others to default on their mortgages when the value of their home falls below their mortgage balance.

Here's how the credit allows buyers to avoid putting their own money at risk. Suppose a couple making $60,000 annually buys a home worth $200,000. They can get an FHA-insured loan if they put down 3.5% of the purchase price, about $7,000. The couple will also need to come up with another $1,000 in closing costs, for a total of $8,000. The couple can either dip into savings or borrow that money from relatives or somewhere else on a temporary basis.

Homebuilding Drops as End of Tax Credit Loomed

From Bloomberg.com:

Residential construction in the U.S. unexpectedly dropped in October amid concern a homebuyer tax credit would expire, illustrating the market’s dependence on government help to sustain a recovery as job losses mount.

Builders broke ground on 529,000 houses at an annual pace, down 11 percent from the prior month and the fewest since April’s record low, Commerce Department figures showed today in Washington. Data from the Labor Department signaled inflation will be of little concern for the Federal Reserve.

Homebuilding seized up as builders waited for President Barack Obama to extend a first-time buyer incentive, which has since been passed and expanded. The highest unemployment rate in 26 years and consumer prices that remain below Fed long-term goals indicate policy makers will need to nurture the economy by keeping interest rates near zero.

“The recovery isn’t well established enough yet to take away that support,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York, who previously worked at the Fed. “An early withdrawal of fiscal and monetary stimulus would probably be quite disruptive.”

Realtors’ Agenda Shifts from Homebuyer Tax Credits to Lending Issues

After successfully lobbying for an extension and expansion of the first-time homebuyers credit, the National Association of Realtors is reportedly set to focus it efforts on relieving the commercial real estate credit crunch. According to Market Watch, there are hundreds of billions of dollars in commercial loans that will require refinancing over the next two years.

"The commercial area is something that is going to be in the news more and more, as loans are rolled over and need to be refinanced," NAR senior vice president and chief lobbyist Jerry Giovaniello said Sunday at the industry group's annual conference in San Diego.

Commercial transactions are down due to a "virtual lack of available credit," according to Lawrence Yun, chief economist of the NAR. About $800 billion to $850 billion in commercial loans will mature in the next two years and will require refinancing, he added.

"The credit has to be available ... or potentially lenders will end up owning half of Manhattan," Giovaniello said.

For residential properties, meanwhile, lending requirements remain tough, he said.

"The problem has been to convince lenders, federal agencies and Congress to push the money from Wall Street to Main Street," Giovaniello said. "We think that the lenders could be more flexible. Their capital standards have increased, their stock prices have increased and they need to get out of that overreaction mode."

NAR's policy agenda also includes making sure the Federal Housing Administration remains strong.

Continued tight underwriting standards for conforming mortgages have led prospective buyers to seek out home loans insured by the FHA, which have seen an uptick.

Continued at Market Watch.com…

Home-Purchase Index in U.S. Plunges to Lowest Level Since 2000

From Bloomberg.com:

Mortgage applications to purchase homes in the U.S. plunged last week to the lowest level in almost nine years as Americans waited for the outcome of deliberations to extend a government tax credit.

The Mortgage Bankers Association’s index of applications to buy a house dropped 12 percent in the week ended Nov. 6 to 220.9, the lowest level since Dec. 2000. The group’s refinancing gauge rose 11 percent as interest rates decreased, pushing the overall index up 3.2 percent.

The drop in buying plans points to the risk that the recent stabilization in housing will unravel without government help. In a bid to sustain the recovery, Congress passed and the administration signed a bill last week to extend jobless benefits and incentives for first-time homebuyers, adding a provision that also made funds available to current owners.

“Uncertainty over the housing tax credit sent some tremors through the market in recent weeks,” Michael Larson, a housing analyst at Weiss Research in Jupiter, Florida, said before the report. “But now that Congress has extended and expanded the credit, we should see demand pick back up.”

The MBA’s overall index climbed to 627.5 last week from 608.3, the banking group reported today in Washington. Its refinancing gauge increased to 2998.2 from 2693.7.

Homebuyer Tax Credit Extended and Expanded

After weeks of uncertainty, the Senate and House of Representatives have both passed legislation to extend and expand the homebuyers credit. In addition to extending the deadline through April 30, 2010, it will also include a $6,500 credit to homebuyers who have lived in their current residence more than 5 years. According to the Associated Press, the White House even announced that Obama would promptly sign the bill into law.

Examiner.com publish an article with more details of the new credit. They also raise several valid questions as to whether this extension and expansion will actually help or hurt the ailing economy. You can read a segment of their post below, or find the full text here.

The National Association of Realtors had been pushing hard to extend the credit, as well as include non-first-time home buyers, saying the legislation has helped stabilize the housing market and increased home sales, projected at 5.1 million for the year.

Supporters of the tax credit say that it has helped to boost existing home sales in recent months and that the housing market, and broader economy, would suffer if it is allowed to expire. They contend that extending the credit would help further support sales, stabilize housing prices and generate jobs in the face of an expected increase in foreclosures next year, which is expected to put ongoing downward pressure on prices.

"Tax credits like this only work by creating the sense of urgency to take advantage of them," Sen. Johnny Isakson (R-GA), the measure's main sponsor, said in a statement. "This is the last extension of the home buyer tax credit, and I urge all Americans whether they're first-time buyers who've always dreamed of having a home of their own or someone who's been gridlocked in the failure of our move-up market to take advantage of this opportunity."

Questions for the Tax Lady: November 2nd, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: If the expiring homebuyers credit is extended, will it be modified to include non first-time homebuyers?

Answer: It is still a little too early to tell. Congress has not yet passed a bill to extend the credit, although there are several bills going around aimed at doing so. It will probably be a few more weeks before they take any action, but it is rumored that when they do pass the legislation it will include a $6,500 credit for non first-time homebuyers.

Question #2: How can I get a wage garnishment removed?

In order to get an IRS wage garnishment removed, you are going to need to resolve your account with the IRS. Typically, that involves filing all past due tax returns and paying all past due amounts and assessed penatlies and interest.

If you cannot afford to pay the full amount due to the IRS, then you typically can negotiate a tax debt resolution. This can be either a full settlement through an Offer in Compromise, a monthly payment plan through an Installment Agreement, or temporary protection against IRS collection through Currently Not Collectible status. Click here to learn more about the tax debt settlement services offered by my law firm.

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Will the Homebuyers Tax Credit be Extended

Just last week I posted an entry to my blog with last minute tips for people hoping to take advantage of the expiring first time homebuyers credit. However, as the deadline to claim the credit gets closer and closer, more experts are predicting that Congress will pass some type of incentive extension within the next few weeks. In fact, there are reportedly over 5 bills currently being considered by the Senate and House of Representatives.

Effect of Current Credit

Although it is difficult to measure the exact effect of the current credit, many people assert that it contributed to the leveling off of the recent housing market crash. According to the IRS, over 1.4 million American families have taken advantage of the credit so far. Another 400,000 are expected to by the end of the year. This total represents a sales increase of around 10% from last year.

While this does represent a decent increase, it is not clear if the increase was because of the credit or not. Mike Larson of Weiss Research claims that low prices and reasonable rates of 30-year fixed mortgages have made more of an impact than the Federal government’s tax credit. He refers to it as “the icing on the cake, not the cake itself. Falling home prices have worked their magic. That's why we are where we are."

Multiple Bills being Considered

As I mentioned before, there are already nearly half a dozen bills being considered by Congress. The most popular bill simply extends the current credit’s deadline from November 30^th, 2009 to May 30^th, 2010. However, there are other variations that would expand the credit even further. One seeks to raise the value of the credit from $8,000 to $15,000 while others would change the credit so that all homebuyers, as opposed to just those who have not purchased a house within the past three years, can take advantage of it.

Economy Still in Trouble

The main reason that supporters want to extend the bill is simple: the economy is still in trouble. Without a tax incentive, U.S. home sales will drop in 2010. Specifically, many are worried that sales during the winter months (when real estate activity is typically low) will plummet and put our economy back into trouble. Senator Isakson from Georgia, who actually worked in real estate before running for office claims “December through February is historically the worst time for home sales anyway because of the winter months, so with the credit ending November 30, you have a double whammy.”

Popular Credit

In all honestly, one of the largest reasons Congress is considering extending the credit is because of its mass popularity. Politicians are always thinking about their next reelection, and supporting legislation that is popular among your constituents is a great way to get reelected. Average taxpayers are always claiming that Congress does not do enough for “main street Americans” extending or expanding the current credit would be a great way to please them.

Opposition to Extension

There is quite a bit of opposition to extending the credit. First and foremost, there is concern over its costs. The first credit was passed in a state of economic emergency. Americans were frightened that the banking system would collapse, and that the housing marketing would crash entirely. Therefore, Congress was able to get the credit created without much debate about the costs. However, when you look at the math, this credit has already been very expensive. If 1.4 million families have already taken advantage of the credit, and 400,000 more will before it expires, then we are looking at a total cost of nearly $15 billion. Additionally, experts are worried that excessive credits will be the first step in creating the next real estate bubble.

Heavy Industry Pressure

Another thing to consider when examining the housing credit is the amount of pressure real estate and construction lobbyists have put on Congress. The National Association of Home Builders, The National Association of Realtors, and even the Business Roundtable (an association of chief executives) have all published statements promoting an extension of the credit. They are also pushing for lower interest rates, and an extension of the limits on loans eligible for government backing or purchase

Likelihood of Extension

With all of this debate about whether the credit has worked or not, what exactly are the odds that the credit will be extending? Lisa Poole of Time Magazine says there is a 2 to 1 chance that it will be either extended or expanding, but I would say that the odds are probably better than that. I doubt that it will be increased to $15,000, but I am pretty confident we will see some type of extension on the $8,000 credit for first time homebuyers.

Questions for the Tax Lady: August 10th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an e-mail, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Do you know if the government is planning to do any type of first time home buyer tax credit next year like they did this year?

This is a very tricky question to answer because no one really can predict exactly what changes Congress will make to the tax code. Currently to be eligible for the credit you must purchase a home before December 1^st, 2009 and there has not been any serious mention of extending. Additionally, as signs continue to roll in that the housing market crisis is leveling off, funding another huge tax credit tax credit for home buyers probably is not the Federal government’s top priority.

Question #2: If I sold my house in 2007 will I be eligible for the first time homebuyer’s credit?

No. Unfortunately, the credit is only available to taxpayers who did not own a home three years prior to the closing date on the new home. However, if you do buy a house you will be eligible to deduct some of your closing cost, points, fees, etc., and remember that you can also deduct your mortgage interest.

Question #3: How do I know if my car qualifies for the Cash for Clunkers rebate?

First of all in order to qualify for the Cash for Clunkers program you need to have a clear title, and have proof that you were both the registered owner and had insurance on the vehicle for one full year. The program also only applies to a specific list of cars. Click here to download a PDF from Cars.gov of the vehicles that qualify.

Fraudulent Homebuyer Tax Credits Being Eyed by the IRS, Fines “Steep”

From Inman News:

The Internal Revenue Service says a Jacksonville, Fla.-based tax preparer is the first to be convicted of fraud related to the federal first-time homebuyer tax credit.

James Otto Price III, 47, pleaded guilty on July 23 to falsely claiming the first-time homebuyer credit on a client’s federal tax return, the IRS said. He faces up to three years in jail and a fine of up to $250,000 when he is sentenced.

Price was indicted in May on 35 tax-fraud counts, including 15 involving the first-time homebuyer tax credit, The Florida Times-Union reported. Most of Price's clients were unaware he was claiming the credit on their behalf and paying himself a $1,000 fee from their electronic refunds, a prosecutor told the paper.

In announcing Price's conviction, the IRS claimed to have "a number of sophisticated computer screening tools" to identify tax returns that may contain fraudulent claims for the tax credit. The IRS says it has executed seven search warrants and currently has 24 open criminal investigations of potential instances of fraud involving the credit.

Applications For Home-Buying Tax Credit To Be Cut Off Today

The application deadline for the popular $10,000 California homebuyers tax credit is today. The California Franchise Tax Board had extended the number of applications they would accept, and there are now 75 spots left for California taxpayers who are eligible for the credit. However, according to the Sacramento Bee the California Franchise Tax Board announced this morning that they would no long accept applications past midnight tonight. Check out a clip of Sac Bee’s coverage of the last minute change below.

Early Wednesday, the FTB said it has received 11,925 applications for the popular tax credit - 75 short of its 12,000-application limit.

The state tax agency said last month it would take 2,000 extra applications for the credit because many received are duplicates, invalid or incomplete.

The tax credit program launched March 1 to move statewide home builders' excess, unsold inventory, proved more popular than expected. The FTB said it has already issued 4,808 certificates for nearly $45 million worth of credits. Officials expect to process and award all the credits by the end of August.

Home builders have shifted their focus to efforts to add $200 million more to the original $100 million allocation. But that's proved more difficult than expected in a rancorous budget climate. Some economists have criticized further allocations as a stimulus for home building when the state's larger problem, they argue, is an excess of unsold existing homes.

The California Building Industry Association, a trade group for residential builders and suppliers, maintains that each $10,000 tax credit adds $16,000 to state government revenues and $3,000 to a local government because of the economic activity generated.

American Land Title Association Urges Support of $15,000 Tax Credit

As I have posted multiple different times, numerous members of Congress are hoping to increase this year’s new homebuyers tax credit to $15,000. Now, the American Land Title Association has also sent an open letter to congress asking them to support the increase. You can find a clip from a MarketWatch.com article covering the story below.

In a letter sent June 26 to the Senate and House, ALTA asked legislatures to extend the $8,000 first-time home buyer tax credit and remove income and other restrictions on who can qualify for the credit.

The Senate version of the bill, S.B. 1230, was introduced by Sen. Johnny Isakson, R-Ga., and is co-sponsored by Senate Banking Committee Chairman Chris Dodd, D-Conn. The companion bill in the House, H.R. 1245, was introduced by Rep Ken Calvert, R-Calif. Both bills are known as the Home Buyer Tax Credit Act of 2009.

The proposals would extend the home buyer credit to multi-family properties used as the borrower's primary residence, eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit. The bill would extend the current credit, which expires Dec. 31, 2009, for one year after enacted.

The idea of expanding the tax credit first surfaced in the federal stimulus bill at the beginning of the year, passed the Senate but was dropped from the final version. The legislation has gained renewed attention since a noticeable uptick in purchase transactions driven by the $8,000 tax credit.

Continue reading this article, here.

Tax Credit For Home Purchase Could Rise

A couple of weeks ago, I published an article on the pros and cons of buying a home in 2009, and one of the major pros on the list was the new homebuyers credit. Lately there has been a lot of talk surrounding the possibility of the same homebuyers tax credit being extended form $8,000 to $15,000.

This would come as a pleasant surprise to the many American taxpayers who have taken advantage of the credit, and could potentially provide another nice boost for the struggling real estate market. Will the change actually take effect this year? It is probably still too early to tell, but I certainly think it could be a possibility if the economy continues to struggle. For more information on the issue, check out the following story from USA Today.

Lawmakers and businesses are calling for expansion of a tax credit for first-time home buyers that has helped spark home sales in an otherwise dismal real estate market.

With the tax credit scheduled to expire in fall, some business groups say the amount of the credit, now capped at $8,000, should be raised to $15,000 and applied to anyone who buys a home.

First-time buyers make up a hefty 40% of home purchases, according to the National Association of Realtors (NAR), which is about 5 percentage points higher than the historical average.

The credit, introduced in July 2008, was expanded in February as part of the economic stimulus package. The proposals may face headwinds amid growing public criticism of government spending to rescue the economy and the widening budget deficit.

Some economists say a tax benefit is vital to spur home buying and help stabilize prices.

Continue reading this story, here.

Get The Most Out of Your Homebuying Tax Credit

MSNBC.com recently posted a helpful article on how new homebuyers can get he most out of their home buying tax credit. You can find a segment of their article below, or check out the full story here.

When it comes to the $8,000 tax credit for first-time homebuyers, it seems there's a new program every week to help tap that money today.

The credit can be claimed on 2008 or 2009 tax returns. Homebuyers who get a loan backed by the Federal Housing Administration can use the money to cover closing costs and other fees, and at least 10 states offer ways to use the tax credit faster.

"There are some real neat tax planning strategies you can apply now," said Bob Meighan, vice president of TurboTax.

To be eligible, a buyer cannot have owned a home in the past three years. So if you're ready to buy, here are some tips:

INCOME CONSIDERATIONS: The tax credit, for home purchases made through end of November, comes with income thresholds, $75,000 for individuals and $150,000 for joint filers. After those limits, the credit begins to phase out. If you bought a home this year and expect your 2008 income to be lower than next year's, it makes sense to file for the credit this year using a 2008 amended return.

However, if you think your income will decrease, due to job loss, wage cuts or hour reductions, it makes more sense to file for the tax credit on your 2009 tax returns to get the most out of the credit, Meighan said.

TAX WITHHOLDING: Another benefit to waiting until 2009: You can increase your take-home pay. By taking the credit next year, you can change your tax withholding status with your employer now and get more on a paycheck-to-paycheck basis, Meighan said.

You'll be giving up a "fatter" tax refund next year, but each month you'll have more change in your pocket.

Also, don't forget to reduce your federal and state tax withholding to account for the tax deduction you can take on the mortgage interest and property taxes you pay.

Quicker Access to First-Time Buyer Tax Credit

From Suze Orman.com:

As you have heard me tell you, there’s a terrific tax break available to first time homebuyers this year. And just so you know, the federal government defines anyone who hasn’t owned a principal residence for three years as a first timer. Individuals with modified adjusted gross income (MAGI) below $75,000 and married couples filing a joint tax return with income below $150,000 are eligible for the maximum $8,000 credit in 2009. (You may be eligible for a reduced credit if you are single with income between $75,000 and $95,000 and joint filers with income between $150,000-$170,000. Above those amounts you are not eligible for any credit.) To grab the credit this year you must close on a home purchase before Dec. 1.

Now here’s where it gets interesting. Typically you get a tax credit “back” when you file your tax return. The credit either reduces the amount of tax you owe, or if you owe no additional tax then you are sent a refund check for the amount of the credit. And I want to remind you how valuable a tax credit is: It is a dollar for dollar deal. For every dollar of credit your tax liability is reduced by one dollar. That’s seriously better than a tax deduction, where the value of the break depends on your income tax bracket. For instance an $8,000 tax credit reduces your tax liability by $8,000. An $8,000 tax deduction for someone in the 15% tax bracket reduces his or her tax bill by $1,200 ($8,000 x. 15).

But one obvious issue is that if you are buying a house in 2009, you won’t get your tax credit until you file your 2009 tax return in early 2010. That doesn’t really help you make the purchase right now.

Instant Access to Tax Credit for FHA-insured Loans

So the Dept. of Housing and Urban Development made a change in how the credit works: If you take out an FHA-insured loan and you qualify for the first-time buyer tax credit your lender can essentially get you access to the money today so it can help you pay for certain loan costs. The new rule allows you to get an “advance” on the value of your tax credit, rather than having to wait until you file your ’09 return.

There are some rules you need to understand, so read this carefully: The tax credit can not be used to finance the minimum 3.5% down payment required on all FHA loans; you still need to come up with that yourself. That’s good news as far as I am concerned; if you can’t afford to put some money down that is a sign you are not ready to own a home. But the credit can be used to increase your down payment; the bigger your down payment, the lower your monthly housing costs. Or you can use the credit to “buy down” the interest rate; typically paying 1 point (1% of your mortgage value) will reduce your interest rate by 0.25% or so. The credit can also be used to cover closing costs.

Now I want to stress that this advance is typically only good for FHA-insured loans, so you want to work with a lender who specializes in the FHA program. (A few states, including Colorado, Idaho, Missouri, New Jersey and Ohio have programs in place to advance the credit for other types of mortgages.) And please know that the 2009 loan limits for FHA-backed mortgage have been raised significantly. The limit is based on where you live. You can find your region’s loan limit here. (Note: You only need to input your State and then hit “Send” to get a list of limits for your state.) You can learn more about the “advance” of the First Time Homebuyer tax credit at the FHA website.