Monthly Archives: June 2009
First time home buyers purchasing a home with an FHA loan or going through a HUD-approved charitable agency can use their 2009 First Time Homebuyer’s Tax Credit to make their downpayment. The Department of Housing and Urban Development recently announced this new first-time homebuyer perk, which helps millions of FHA borrowers reduce the financial stress of making that first home purchase.
The 2009 tax credit for first time home buyers offers a tax break totaling 10% of the purchase price of a first home with a maximum tax credit of $8000. This homeowner relief program is only for those purchasing their first primary residence, and the amount of an individual tax break depends on the purchase price. Your total tax break may be less if the purchase price is lower. After you are approved for an FHA mortgage, the amount of the tax break can be used for at closing time, presenting much needed financial relief for those with limited funds available to cover closing costs.
How to Take Advantage of Tax Credit Money Before Filing Your Taxes
U.S. Department of Housing and Urban Development Secretary Shaun Donovan says FHA lenders and HUD-approved non-profit groups have the authority to issue “bridge loans” that cover the amount of the 2009 tax credit. When borrowers get their tax money from the IRS, the bridge loans can be repaid in full. These bridge loans are meant to be short-term, intended only to provide access to the tax rebate money until it’s paid to the buyer. Individual tax credit is calculated based on the purchase price of the home, the total is not determined by the total cost of your FHA loan or any other factor. Those who qualify receive 10% of the purchase price as a tax credit in fiscal year 2009, with a cap of $8000 total.
In years past, these kinds of tax credits offered to first time home buyers had different terms than the 2009 version. For the 2009 version, FHA mortgage holders and conventional borrowers do not have to repay the 2009 credit. You are required to pay back the short-term bridge loan with your tax credit; any other portion of your tax refund is unaffected.
FHA mortgages and conventional loans are separate from the short-term bridge loan used to finance the down payment–be sure to ask your lender to clarify the terms of the short-term bridge loan, and how payment should be delivered on the loan covering your tax credit. Make sure you fully understand the terms of the agreement on your bridge loan before signing your name. At press time, specifics on these loans is not clear but the agreement you sign for a bridge loan is just as binding as the FHA home loan itself.
Are you considering an FHA home loan? If so, be sure to examine the FHA’s list of financial institutions sanctioned for violating FHA rules. The majority of FHA-approved lenders operate well within the rules, but the recent sanctions against some financial industry bad apples shows a small minority trying to outmaneuver both the consumer and the FHA. The sanctions were issued for a number of problems, all varying from case to case. Investigators found violations ranging from bad quality control all the way to falsifying documents used to issue FHA home loans.
FHA mortgages have specific rules for both the banks and borrowers alike. Consumers and lenders reap benefits from FHA-insured loans, but when FHA rules are broken or ignored, it takes the FHA time to catch up. The FHA has standard periods of review for its lenders; banks that passed an FHA review might not get caught violating FHA standards until the following review.
When violations are detected, the FHA issues sanctions; those 120 lenders were punished with fines in some cases, to loss of “FHA approved” status where appropriate.
That’s what happened in the case of the Houston, Texas-based Gatewood Mortgage Corporation. FHA reviewers discovered a variety of violations including falsified documents and violation of FHA approval guidelines. The entire case is detailed in a Department of Housing and Urban Development press release. The end result? Gatewood Mortgage Corporation lost its FHA approved lender status and is no longer authorized to work with the FHA.
In all of the 120 cases where sanctions were issued, they were the result of routine reviews. In spite of some news sources description of these cases as a “crackdown”, in every case the 120 lenders who received sanctions were punished because of the scheduled review process rather than a special task force operation.
FHA loans are safer as a result of these sanctions, and a bill called the Helping Families Save Their Homes Act further protects those interested in FHA home loans by requiring HUD approval for all parties participating in FHA single family mortgages. HUD now has the authority to issue civil penalties against loan originators who are not HUD-approved but still try to issue or participate in FHA mortgages, and there’s a new requirement for FHA-approved lenders to use company names registered with HUD for their advertising campaigns. This prevents deceptive or misleading advertising campaigns. There are also now, more aggressive requirements for reporting the status of licensed status for loan officers. Suspended, disbarred or indicted loan officers can’t take part in the FHA loan process.
More information including links to a list of all 120 FHA lenders who received sanctions is available at the Department of Housing and Urban Development official site.
In May, 2009 new rules were issued covering the 2009 First Time Homebuyer’s Tax Credit and down payments on FHA loans. In the first press release about the program, the Department of Housing and Urban Development appeared to allow home buyers interested in FHA mortgages to use a short-term “bridge loan” against their 2009 First Time Homebuyer’s Tax Credit.
FHA borrowers were told they could use the loan as a down payment on their homes, but legal issues prevent banks from issuing down payment assistance on FHA mortgages. Since the initial May announcement, the rules have been revised so that such bridge loans are used within federal guidelines.
Here’s a simple breakdown of the issue:
- The 2009 First Time Homebuyer’s Tax Credit lets people purchase their first primary residence with a tax break up to $8000.
- The tax break can only be claimed for 2009 home purchases.
- The tax break money is paid after the purchaser files an income tax return for 2009.
- The first set of FHA rules released to the public appeared to let banks offer bridge loans to borrowers, letting them use the amount of the tax break as a down payment on an FHA home loan.
- There are federal laws which prevent banks from offering down payment assistance.
- The bridge loans could be interpreted as down payment assistance even though the loan is simply to cover the amount of an income tax refund.
- Under federal law, only certain charitable organizations and other approved institutions are allowed to provide down payment assistance on FHA loans.
Additional guidance was issued by the FHA to revise and correct the policy. Under the new guidelines FHA home loan applicants can still apply for bridge loans, but the loans cannot be used to meet the FHA’s minimum 3.5% down payment. The money can be applied to other expenses or be paid in addition to the required down payment.
Putting an additional $8000 down on your FHA mortgage beyond the required 3.5% is a sound investment. FHA loan applicants are also allowed to use the bridge loans to pay for closing costs, up front interest payments or other expenses related to closing the deal on an FHA home loan.
In spite of the initial confusion, FHA rules are clear now–bridge loans are permitted, but the FHA’s required down payment must still come from the borrower. The Department of Housing and Urban Development’s official site states FHA guidelines are designed to allow people interested in an FHA mortgage to cut their up front costs while requiring the borrower to have a personal investment in the property bought with an FHA home loan.
For more information on how to apply for a bridge loan towards your expected 2009 First Time Homebuyer’s Tax Credit, ask your FHA-approved lender to explain the process.
There are approximately $290 billion in FHA loans projected for 2009. While indicators show conventional lending markets are still feeling the effects of the housing slump the FHA has taken a larger role in helping consumers get affordable home loans. FHA mortgages have grown at a surprising rate–they tripled in 2008 and in 2009 those numbers could go even higher. 30-year rates on home loans have fallen to record lows; homeowner bailout programs and government stimulus packages make it even more attractive to buy a new home using an FHA-insured loan.
Some of the most recent developments are making those on the fence about buying a new home in this economy give FHA loans a second look. In late May 29, the Department of Housing and Urban development announced a new plan allowing home buyers to use their 2009 First Time Home Buyer’s Tax Credit (also known to some as the Obama tax credit) as part of a down payment on their FHA home loans. The plan lets buyers monetize the 2009 first time home buyer tax credit using short-term bridge loans from authorized agents. The loan is applied as a down payment on the FHA loan; the larger the down payment, the lower overall cost of buying that first home. According to the U.S. Department of Housing and Urban Development, FHA borrowers are now permitted to apply the 2009 tax credit to the down payment above and beyond 3.5 percent of the appraised value or the borrower’s closing costs.
FHA home loans already have low down payment requirements, especially when you compare the down payments needed on a conventional loan. Buyers who take out FHA home loans and apply the money from a 2009 First Time Home buyer’s Tax Credit means FHA borrowers could achieve lower interest rates and save over the lifetime of the loan.
FHA loans skyrocketed in 2009 thanks in part to incentives like this. In anticipation of even greater interest in FHA mortgages, HUD is requesting even more money for an expected flood of FHA loan applications in 2010. Interest in FHA home loans increases whenever conventional loans are tougher to get. Credit requirements and other issues connected with conventional loans make the housing market even more competitive, but FHA home loans feature low down payments and more forgiving credit requirements–home buyers have an affordable opportunity to purchase a first home even in a stressed-out economy–thanks to FHA loans.
The U.S. Department of Housing and Urban Development wants to issue $400 billion dollars in 2010, and HUD has requested the authority to help buyers use the equivalent of more than $2 million in loan guarantees. In 2007 lending volume was much lower, around $60 billion. The requested $400 billion in FHA loan money for 2010 makes the 2007 numbers seem tiny by comparison
More people than ever are choosing FHA loans, FHA refinancing and FHA reverse mortgages. No one knows what additional help could come for first time borrowers or whether there will be an equivalent first time home buyer’s tax credit for 2010. In the current housing market, now is definitely the right time to explore FHA loan options.