The American Recovery and Reinvestment Act of 2009 was the heavily debated economic stimulus package that was signed into law in February of 2009.  The home buyer tax credit is a component of this package and was created to promote home ownership.  The bill originally provided for an $8,000 tax credit available to first-time home buyers for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009.  

There’s great news, however, if you’re in the market to purchase Pinellas Real Estate!  Buyers may now use the credit upfront as extra down payment money, to lower payments, pay discount points (reducing their interest rates), or to supplement closing costs.

The big “BUT” here is that buyers  CANNOT use the first time home-buyer tax credit toward the 3.5% minimum that is required of FHA insured loans.  The buyer still has to present those down payment funds, yet they can be a gift from a relative. 

The Truth About the Misinformation Currently Being Circulated Amongst the Mis-Informed: 

There’s a lot of misinformation out there saying that the $8,000 can be used for your down payment, but that’s just not the case!  It’s a convoluted mess because HUD originally released this Mortgagee Letter 2009-15, later rescineded it (the details as to why are unclear other than they realized they made a mistake), and now it’s up for public speculation as to what’s going to happen with that aspect of it.  For crying out loud, we reported last October that the FHA had just done away with all seller-funded closing costs - now they want to essentially reverse that?!  For the real facts, keep checking back, or better yet subscribe to The Pinellas Peach and you’ll be notified automatically.

Eligibility for the $8000 tax credit can be found on the IRS website.  It is always wise to consult with a tax advisor and a licensed Realtor to discuss your particular situation. At this time the key components to this upfront monetization of the $8,000 tax credit it that:

• it will only be available for FHA loans
• full documentation of income is essential
• low debt-to-income ratios are mandatory
• the buyer is still responsible for the 3.5% minimum down payment

I’m going out on a limb here, and this will probably tick some of you off, but making sure buyers have the discipline to save 3.5% for a down payment is probably a good indicator as to whether or not they’ll be able to keep up with mortgage payments in the event of an unforseen needed repair, life change, etc.  Otherwise we’re essentially back to 100% financing which is what got us all into this pickle in the first place.  100% financing with a rainy day savings account?!  Fabulous.  Otherwise, maybe it’s not time to take the home ownership plunge just yet.