FHA Loan Articles

Tax Break Money and FHA Loan Downpayments

Recent headlines brought good news for first time home buyers purchasing a home with an FHA loan. The Department of Housing and Urban Development announced those using FHA lenders and HUD-approved non profit agencies are eligible to take advantage of the 2009 First Time Homebuyers Tax Credit in a new way--as part of the down payment.

The 2009 tax credit for first time homebuyers provides a tax break totaling 10% of the purchase price of the home with a maximum tax credit of $8000. (The amount may be less depending on the purchase price.) For those applying for an FHA mortgage, that entire amount can be used for at closing time. This is a huge help for those with limited funds available for closing costs.

HOW DO I GET THE TAX CREDIT MONEY WHEN I HAVEN'T FILED MY TAXES?

According to U.S. Department of Housing and Urban Development Secretary Shaun Donovan, FHA lenders and HUD-approved non-profit groups will be given authority to issue "bridge loans" to cover the amount of the tax credit until the borrower gets tax money from the IRS after taxes have been filed. 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.

HOW MUCH DO I GET?

Your individual tax credit is calculated based on the purchase price of the home. It's not calculated by the amount of your FHA loan or any other factor. You will get 10% of the purchase price as your tax credit, with a cap of $8000 total.

DO I HAVE TO PAY BACK MY TAX CREDIT?

Previous tax credits for first time home buyers had different terms than the 2009 First Time Home Buyer's Tax Credit. Unlike the terms of older tax credits, you do not have to repay the 2009 credit. You do have to pay back the short-term bridge loan with your tax credit. The rest of your tax refund is yours to keep, but if you take advantage of the bridge loan for your FHA home loan down payment, you'll be required to use the tax credit to pay off the loan.

Your FHA mortgage or conventional loan is 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. It's very important to understand the terms of the agreement on your bridge loan. At press time, specifics on these loans is not clear but the agreement you sign for a bridge loan is binding. Don't assume the terms of your FHA mortgage payments also apply to the bridge loan.

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