Monetization of the Housing Tax Credit
Posted by: gardnergroup in Tax Credit, Home Buying on Jan 20, 2010
HUD is now allowing "monetization" of the tax credit. What does that mean?
It means that HUD allows buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.
Under HUD's guidelines, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans of up to $8,000. The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.
Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement. In addition, approved FHA lenders can purchase a home buyer's anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.
More information about the guidelines is available on the NAHB web site. Read the HUD mortgagee letter (pdf) and an explanation of the FHA Mortgagee Letter on Tax Credit Monetization (pdf). An FAQ about monetization (pdf) is available at the NAHB web site.
You can find more information on the Federal Housing Tax Credit here.
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Mike
said:
| This is even more confusing. I was told that using the credit towards the closing costs/downpayment was no longer available. Please clarify! | |
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Brandon
said:
| I've dug on HUD's site as well as the National Association of Home Builders site and spoken with a lender friend to see if I could find out anything more about it no being available and I can't. The credit may be applied against your closing cost and pre-paid items IF you do an FHA loan. You many not use them as a down payment and must still come up with FHA's 3.5% minimum down payment. The how of this is a little more complicated. You are basically borrowing the 8K until your tax credit comes in, so there is interest involved - not to exceed $200 on the $8000 or 2%. Make more sense? Where did you hear it is no longer possible? | |
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