Ever since Secretary of HUD Shaun Donovan dropped the hint in a prepared speech to the National Association of Realtors about “monetizing” the 8000 tax credit, there has been quite a bit of speculation as to what exactly could and could not happen.
Now the speculation can end – HUD has issued their official position in the form of a Mortgagee Letter regarding “monetizing” the 8000 tax credit for eligible home buyers.
According to National Mortgage News Online:
The Department of Housing and Urban Development issued guidance that opens the door for FHA-approved lenders to provide short-term loans — with restrictions — to borrowers who are eligible for the $8,000 first-time home buyer tax credit. Borrowers must still come up with the required minimum 3.5% down payment using their own funds. But after that, they can use the short-term liens to increase their down payments, cover their closing costs or buy-down their mortgage rate. Calling the tax credit advance “another step towards accelerating the housing market,” HUD secretary Shaun Donovan told the National Association of Home Builders’ annual spring board meeting in Washington that the initiative is a “real win for everyone.”
Tax credit loans made by state and local housing finance agencies, government agencies and certain nonprofit groups can be used to cover the minimum 3.5%. However, non-profits that receive fees from sellers cannot provide downpayment assistance under this program. HUD didn’t want to do anything that would allow “these seller-funded schemes back in,” a senior HUD official said. The department has issued a mortgagee letter (2009-15) with guidance on acceptable interest rates and fees. “We are putting in place the necessary safeguards and consumer protections, and if monitored the right way, tax credit loans can be used efficiently and safely,” secretary Donovan said.
I think that the most popular question that people have about the ability to monetize the 8000 tax credit is whether or not they can use it for their down payment. The direct answer to the question is Yes*** and don’t forget the *** – it means that new home buyers still have to come up with the initial 3.5% down, but if they want to use the tax credit for more of a down payment on top of the required 3.5%, they are free to do so.
One other item that I had questioned was “just exactly how much is this going to cost the borrower to get this short term bridge loan?” and HUD did a nice job of addressing that too. According to the Mortgagee Letter:
Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer. In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive. (Example: $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)
This means that the costs for this bridge loan/monetization/short term loan/second mortgage/whatever-else-you-want-to-call-it are ensured to be reasonable.
Will it help boost home sales? According to the experts, as many as 160,000 people across the US will be able to take advantage of the 8000 tax credit and being able to monetize it will probably even help increase that number. According to Reuters:
The National Association of Home Builders estimates that the $8,000 first-time homebuyer credit will stimulate 160,000 home sales across the United States — 101,000 purchases from first-time buyers and another 59,000 purchases by existing homeowners who sold dwellings to first-time buyers.
My Opinion About The 8000 Tax Credit Monetization Plan:
I am happy to say that the two concerns I had about the program have both been addressed by HUD and I am now a fan of this plan. I think it is a good one. While it won’t solve everything that is wrong in the housing market, I think that given all of the potential for abuse, HUD has done an excellent job of enabling the benefit of helping new home buyers as much as possible while still maintaining a “sane” amount of requirements.
If you still have questions regarding the monetization of the 8000 tax credit, here are a few more resources:
Official Mortgagee Letter 2009-15
New Home Buyer 8000 Tax Credit Down Payment: Answers To Questions
8000 Tax Credit Questions and Answers
Arizona Mortgage Rates May 29 2009
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How does this apply to closing costs?
Hi Christi-
You can use the tax credit to help you pay your closing costs. This is becoming more important right now, as the real estate market has changed substantially to a strong sellers market, meaning it’s much harder to get the seller to pay those closing costs on behalf of the buyer.
I think in the interest of getting people to purchase homes this really does nothing. It has always been known that the down payment is the hurdle that keeps people from purchasing a home. There are plenty of people out there that are able to make a house payment but would have to save for years to make the 3.5% down payment. I think if they were really serious about helping the market recover they would bridge the gap in the down payment assistance arena.
@Ryan,
Thanks for stopping by and leaving an insightful comment — the major hurdle for many first time home buyers is saving enough for the down payment and this “monetization” plan does not address that.
To my understanding, down payment assistance plans are being argued (both for and against) right now in Washington – and maybe, just maybe down payment assistance programs will be brought back in some form.
We will have to wait and see.
At least in New York State we have high closing expenses, such as anywhere from 3/4%- to 1 3/4% mortgage tax on the amount you mortgage- (depending where you live)– that’s right!! — a tax to have a mortgage,-due at closing– then high taxes that must be set up to escrow, (typical taxes on a 200,000 house are $5,500.00- $6,200.00 per year), so that often comes to 10 months worth of taxes and home owner’s insurance, plus MIP or PMI, title insurance ($1,000.00 or so without even the fee title insuance), closing attorney for the lender (buyer pays for), closing attorney for the buyer, filing fees, bank underwriting, processing fees etc., possibly origination fees, appraisal fee, home inspection fee , etc.— all addding up to MUCH more than the measly 3 1/2% down payment. This typically all adds up to needing over $17,000.00 when the 3 1/2 % is mearly $7,000.00 So, yes, many folks need some type of help with the purchase of a home. There is much paperwork involved for all parties to fill out and maintain with establishing a mortgage and home purchase…. We’re not in Kansas and this is not 1960….
How can I get this; who do I contact here in Orange County, Texas.
I am a wheelchair confined 62 year old widow & desperately need my own home.
My local HUD office does not know how to do this; & had put me off for a year.
I do have a SECTION 8 Rental Assisstance Voucher; & was told by the originating HUD that I could turn this into a BUY under Section 8. And there is suppose to be a Lease/Purchase under the SECTION 8 Voucher Program; But this office where my voucher is does not know how to do that either….I DESPERATELY need help in getting this done as I’ up for Recertification this next month; I’d rather BUY than be a renter again with a BAD Landlord. I NEED my own home for safety, health, social reasons.
Owning my own home I’m not faced with having to move at the end of each lease term, when Landlords get a BUG up their you know whats…..Pls help me…
Margaret,
You should be able to contact any FHA approved lender in your area and they will be able to help you figure out what is possible in your situation.
Go to Google and search on “Orange County Texas FHA Lender” and you should have plenty of loan officers to choose from!
Good Luck,
Justin
Hey Justin,
Do you happen to know of any Lenders or other sources that are presently offering the “short term bridge loan”?
Thanks
Larry
@Larry,
I do not.
I seem to keep reading about how in different parts of the country “XYZ Non Profit Organization or ABC non profit” is offering these loans, but I haven’t been able to nail down anything official — and this is especially true in the Arizona market.
As soon as I hear of one, I will be sure to let everyone know.
Justin
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