First-Time Home Buyers: Use $8k Tax Credit For Down Payments Or Closing Costs?
BusinessWeek has an interesting article about a little known program that will allow first-time home buyers (technically, those who have not owned a home in three years) to use the 8k tax credit to offset down payments or closing costs.
From BusinessWeek:
Buyers who haven't owned a home for three years or longer are eligible for an $8,000 tax credit, thanks to a provision in this winter's stimulus package. Now, under a little-noticed program announced May 29, the Federal Housing Administration will steer the funds to cover closing costs directly-in some cases even offsetting the 3.5% minimum down payment FHA loans require. That's enough to cover most or all of the down payment and fees for homes up to the U.S. median price, now about $169,000.
Of course, some think that the "no money down" lifestyle contributed to the housing bubble, and point out that buyers who receive down payment assistance default at a higher rate than those who don't need it.
Will you take advantage of this program?
FHA Loans: Return to 0% Down [BusinessWeek]
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Comments:
0% down and cash back at closing is back!!! New and improved becasue the government is endorsing this failed pratice. The next wave of foreclosures now backed by the taxpayer.
Awesome job guys!!!
Hopefully nobody will get in over their heads with a max home price of $169,000. Mortgage payments on that should only be around apartment rent rates anyway.
I was definitely going to take advantage of this tax credit - if I am looking for my first house, why put it off till next year? But maybe now this will help me transition from renter to buyer, rather than giving me $8K to dump on, oh, say... fancy furniture to fill the place with (whatever).
I paid $0 down and got cash back at closing under my VA benefit. This is not necessarily a bad thing, so long as credit isn't given to those that can't afford it.
It wasn't the $0 down and cash back that made people default. It was the fact that they were given $250,000 of loan on $30,000 of salary or less.
doing the first time homebuyer thing right now - important info to note:
if you aren't using the above program [i am not] you can also reduce your withholding now to get chunks back in each paycheck or you can file an amended 2008 return
if you are going to do this, as my lender found out at the last minute [this morning, we close next week] the borrower needs to sign an affadvit stating they haven't owned a home in the last three years AND provide proof in the form of the last 3 years worth of tax returns... sigh... got 2008, 2007 on hand. 2006 is in the storage unit with the rest of my stuff, waiting to move into the house that i can't close on until i find that piece of paper [and they put the new roof on the carport!]
Nothing like getting shafted by the feds under the appearance that they're "stimulating the economy." It's always good to know that my tax dollars are going to help those who have found out that the Feds will help them when they refues to help themselves. Personal responsiblity has gone out the window. Can't afford something basic such as a place to live because you have all those bills like, your cell phone, your cable TV, your video games, you MP3 players, or any of the other trinkets you really don't need (or can afford). No problem, you friendly Uncle Sam with all those taxpayer dollars is going to be there to bail you out.
As for all you responsible adults who actually manage their own finances appropriatly. Uncle Sam is there for you too. Uncle Sam needs YOUR MONEY to fund those poor unresponsible taxpayers who just can't seem to get ahead in life. He needs you to keep working, paying tax bills, bailing out the banks (who by the way are sticking it to you with higher interest rates, fee's and now grace period on your credit cards) and bailing out the auto industry so that more people don't hit the unemployment lines causing your friendly Uncle Sam to come back and hit you up for more of you hard earned dollars to cover the additional mess he's made.
Handouts only encourage more handouts from those that quickly learn they don't have to produce anything or be resonsible for their own actions. Somewhere I heard the saying, Democracy ends when people realize they can vote themselves a raise. We seem to be in a visouse cycle and, when it comes to an end, it's really going to hurt.
@laserjobs: The difference here is that the rates are set by HUD, are not adjustable or inflatable, and there isn't a "interest only" period at the beginning.
In essence, assuming your escrow account doesn't change, your first payment amount will equal every other payment you will make on the house.
@dougp26364: I assume you are talking about the corporations too, right? Especially since they have way more weight in what the government does then any us of lowly individual taxpayers.
@Nakko: not sure what world that's in but a home that's 169,000 in NJ is one of two things.
A shit hole or a mobile home.
@catastrophegirl - manic first time home buyer: Who needs those three years of tax returns? The lender?? I know the IRS doesn't.
@catastrophegirl - manic first time home buyer: Huh? I never had to sign any statements or give up prior tax returns.
@RStui: which wouldn't have been possible had buyers been forced to pay any sort of real percentage as a downpayment. But...point taken.
Woah everyone! I am a mortgage broker in Portland, OR. There are currently NO lenders that will go for this. Borrowing down payment? I don't think so. This has to be done by a state agency, of which there are few states that have it, but NO lenders are going to want these loans...100% financing?? Um, yea, that is (partially) how we got here in the first place!
@dougp26364: Yeah thats nice, except for the fact that many people have paid far more than the value of the tax credit to the IRS. I have personally paid nearly 3x the value of the tax credit in the last year alone, so I am only getting my own money back. Thanks for playing, though.
@catastrophegirl - manic first time home buyer: i think the IRS can produce a copy of old returns for $60 or so.
[www.irs.gov]
might be easier/worth it.
@dougp26364: The $8,000 is not a bail out for home buyers that failed. It's a stimulus to get people buying again. People that CAN afford it have been hesitant about buying because they think values will continue to drop. That's the idea behind this.
We closed on our first home in June 2007, and our home has lost at least 10% in value. Sure, perhaps I'll eventually benefit somewhat from any uptick in the market from this program, but it still annoys me. Enough about me and my problems, though.
I think saving 20% of the house's value is the sacred part of getting a home. You prove to yourself that you can save, and are responsible enough to own and maintain a home - by continuing to save. When banks and/or the government come along and undermine that process, i think that's where the problems begin.
That's not to say that those living under a tight budget who can't save a down payment are irresponsible. But if your budget is so tight that you can't put together a down payment, what happens when you have a $10K repair job on your home?
@floraposte: my nice three bedroom, 2 bath on half an acre with a waterfront view of the river is only $126k. muahahaha
...Only on FHA insured loans, which you can only get if you have the right debt to income ratio.
@emmpee9: the lender in this case is my credit union and they told me today that they need to provide an affadavit to the IRS for me to be eligible for the tax credit.
i don't know exactly why they need the last three years of tax returns, because i would assume the IRS has that info, but i can't count on them [the government] throwing my records [including SSN#]out in a large pile of computers in a dumpster behind the building
@Elcheecho: i need it by monday. i HAVE a pdf backup on a computer that hasn't been turned on in over a year. i can probably get that running or pull the hard drive and rescue it, more easily than i can move all my boxes and furniture in 95 degree heat
@catastrophegirl - manic first time home buyer: umm, $126k would be the down payment I would need in order to afford a house like that here in san diego...
@youbastid: sorry, your'e right, i wasn't clear:
"if you are going to do this" refers to buying a first home and applying for the tax credit.
it does not apply to changing your withholding or amending your return.
So, if I were to qualify this and I used it, and was able to pay my mortgage, would I be a jerk for riding on other taxpayers?
I'm contemplating whether to keep renting (which means finding a better place to live, maybe a rental house that hopefully won't get foreclosed out under me, than the one I'm in right now) or try my hand at finding a nice house.
@jscott73: scratch that, $126k wouldn't even cover the down payment I would need, oh well guess I'll stick to looking at condos.
If I recall the government tried something similar to this in 2006?
Yes, I can see how this is going to turn out well.
@RStui:
The report linked in the article disagrees: [papers.ssrn.com]
Or as stated in the article "But while seller financing is riskiest, buyers who get down payment help have higher default rates, whether the money comes from government or other sources."
@jscott73: well i do have to deal with a septic tank instead of city hookups, but that also means i don't pay city taxes. it's a trade off for a 40 minute commute - lots of wide open spaces [half the land around me is held as public property wildlife preserve] and 1600 sq ft of house [with 8 closets and a 20 foot wide kitchen!!!!]
Alright...so around here (I live just north of Detroit) we have some unbelievable deals on houses right now. HUD homes especially are going for ridiculous amounts. These are not your typical foreclosures, either, but basically turnkey homes after you put down new carpet and new paint, going for between 20-30 thousand. Sure, they aren't perfect, but at that price, it's a steal.
So, my question, let's say I'm picking up a 25K home. I can then use the 2500 as the downpayment? As long as I find a lender who will do such a small amount for a Mortgage?
We're talking getting a 3 bedroom home for under 200 dollars a month, which is less then I'm paying to rent a bedroom in a friend's house two blocks from the one I have in mind right now.
Isn't this a tax credit? Doesn't that mean that when you do your taxes at the end of the year, you will get the $8000.
After you have bought the house.
How will that help with closing or down payment?
@Landru:
This allows you to apply the eventual tax credit at time of closing. Essentially the government is giving you the money ahead of time so you can get the house.
I bought my first home a few months ago and received the 8k. I was able to file an addendum to my 2008 taxes, so I got it pretty soon after buying.
I don't think this money should be used for the downpayment. That's something you save or beg from relatives. The 8k is for all those other expenses that you didn't know about, repairs you saw that were needed coming in, or stuff you need for the new house.
My wife and I spent 3k of it on stuff (couches, fridge, etc) and have saved the other 5k as an 'Oh, Crap!' fund, which has already come in handy when calling up plumbers in emergency situations.
This is shaping up to be the year to make big purchases. Buy a house and write off $8k. Buy a car (at DEEP discounts if you buy in the next week or so) and write off the sales tax. This could have made for a big return in next years taxes.
Too bad I bought a car four years ago and a house two years ago. :(
Having literally closed on my first house two days ago:
I don't think this is a good idea. If someone can't save up the few grand to close on a house then they have no business buying a full house.
Personally, I'm going to use the $8k to redo the floors and kitchen of the house I bought.
If I had sold my condo in 2006 and not rebought another place, I could've taken advantage of this (even though with a pile of cash from that hypothetical 2006 sale, I wouldn't exactly need help).
We just purchased a home
we live a debt free life until the home came along, we had 20% down and extra cash for closing.
so we are putting the 8 large back in the "oh crap" savings account. gotta have 6 months of standbye cash, coupled with some stuff going to the retirement fund.
but by large the 8k we will get will go to the savings account.
I am a first time homeowner at 29 years old BTW...just to put it in perspective.
This program was basically copied from Australia. When GST was introduced in 2000, the Government started the First Home Buyers Grant, of A$7000 for a pre-used house, and A$14,000 for a never lived in home. This was to offset the GST price increase in new homes.
[In areas in the Far West of NSW around Mad Max country of Broken Hill, some people actually got free houses with no mortgages. House prices have since increased.]
Late last year they increased this for about a year to A$14,000 and A$21,000 respectively. It is for people who have never owned a house, and if they have a SO, their SO must never have owned a house either.
This is a far better idea than our 'First Home Buyers Saving Account', where you can invest A$1000 or more per year with the government matching some contributions and no interest payable. This would have been good, except that you must leave the money in for at least four years, and if you marry or move in with someone in that time who owns a house then you must immediately move the money into your 401K equivalent. Same if you buy a house yourself (or inherit part of one) within that time. No way to pay off the mortgage with the funds. ARGH!
@stopNgoBeau: 0% down also means that if prices dip again, a person needs to move for their job or any number of bumps come up, the person is muuuuuch more likely to mail in the keys than struggle through it.
Also, person can get a much better deal if they don't need to use an FHA loan so if someone had 5, 10, 20% to put down they would use it. And if someone is incapable of saving that much, they probably shouldn't be buying a house.
Skin in the game is very important.
While I think this is a stupid practice and disagree with it on principle, it's a good deal and I'm going to take advantage of it.
Already had! We closed April 15th or so, filed out 5405 early with the known closing address and had the check in our account before closing!
I will be taking advantage of it but not because we don't have the down payment but because it will help with closing costs and we will have more money left over that can go in to any house repairs or stuff that needs to be purchased sooner then later.
No, because we won't qualify. Even though my husband isn't on the deed of this home, I own it, so it counts as us both owning it.
@jscott73: Hah - I was thinking the same, what with the average price up here in LA being about $1bajillion.
@sicknick: Best of luck on getting a home around those prices. There are similar deals in Las Vegas but buying one has been extremely difficult. The banks who own these homes are only interested in cash purchases and turn up their nose at someone holding mortgage approval. Maybe it is different in Michigan though.
I'm closing on my first home this month, but I have to wait to get the 8k until next year. If I was able to get the 8K now it would be a huge help as my 7% downpayment has now changed to 10% (My loan isn't FHA but conventional, and the loan terms changed on me causing me to put more down) and I've now exhausted most of my savings. Getting the 8K now would be helpful so I would have a large cushion in case of emergencies, but since I can't get it right now I just plan on living meagerly for a few months and then putting the 8K directly into savings minus a few improvements to my new place when I do get it.
And as to the people thinking the 8K isn't helping the market, I'm a 23 year old who saves most of the paycheck and hadn't even though about buying a place before. But after learning about the 8K I ran the numbers and buying a place is about the same as renting so the 8K definitely pushed me to buy.
I think it is awful. If people can't save 3-5% for FHA loans or 10-20% for conventional, then they shouldn't own a home. Closing costs can often be negotiated with the seller, especially in this economy. But not having the discipline to save even a tiny down payment? Heck no.
Sweet, my three years will be up in two months...the $8k is a draw given the slide in prices as of late I'm just not convinced now is a good time to buy with or without the $8k.