Bridge Loans From the $8000 Tax Credit
Home Buyers Can Use $8000 Credit for Down Payment and Closing Costs
Jun 8, 2009
According to the S&P/Case-Shiller National Home Price index, the prices of the homes fell by 19.1% during the first three months of 2009. The index has plummeted a total 32.2% from its July 2006 peak and has continuously fallen in 32 straight months. Alarmed by the continuous fall of home prices despite the $8000 first-time home buyer tax credit program and other incentives to home buyers, the federal government is offering a fresh initiative to lure the still-hesitant home buyers. It has made some modifications in the $8000 first-time home buyer program to make it more attractive to first-time home buyers.
$8000 Towards Down Payment and Closing Costs
One of the major drawbacks of the $8000 first-time home buyer program was that home-buyers would not get the $8000 until after they had submitted their tax returns for the year 2009. This meant that the money could not be used for down payment and closing costs. The new changes will allow the home buyers to take short-term loans from the $8000 tax credit, which will make the $8000 available instantly.
"For first-time home buyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit," said IRS Commissioner Doug Shulman, in a news release. "This important change gives qualifying home buyers cash they do not have to pay back."
U.S. Housing and Urban Development Secretary Shaun Donovan, while unveiling the policy change at the NAR Real Estate Summit said that "We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a down payment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to “monetize” the tax credit through short-term bridge loans." (Source: realtor.org news release)
Conditions for Taking the $8000 Bridge Loan
1. It is only available through FHA (Federal Housing Administration) insured loans. FHA will permit FHA lenders and other approved government organizations or non-profits to issue a bridge loan in exchange for a second lien on the property.
2. The initial 3.5% towards the down payment should be paid by the borrower- This ensures that the borrowers have some stake in their homes. The $8000 bridge loan can be used to pay the down payment that exceeds the initial 3.5% and thereby reduce the interest percentage.
3.It can be used for closing costs- The 8000 tax credit can be used for closing costs that are normally associated with buying a home such as lender fees, title fees, inspection fees etc.
Other Details
1.Costs related to the $8000 Bridge Loan- According to the official mortgage letter by HUD, any costs related to the $8000 bridge loan should be reasonable and disclosed to the home buyer. In FHA's opinion fees and costs that total more than 2.5% of the anticipated credit are considered excessive.
2. The borrower will be required to complete the IRS Form 5405. The lender will contact the borrower's employer and review his/her pay stubs to confirm there are no outstanding garnishments. The lender will also ensure that there are no unpaid student loans or other debts that could offset the 8000 tax credit – including IRS debts.
To learn more about the $8000 tax credit, read All About the $8000 Non-Repayable Tax Credit.
The federal government is hoping that the latest initiative will stimulate more buyers to the still declining home market. While experts do not think that this alone will reverse the still declining home market, it is believed that this will act as a catalyst for the hesitant home buyer who is standing in the sidelines waiting for the market to reverse it's trend.
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