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Using your tax credit to help with closing costs?

By Doug Francis

ausie-houseRising from the ashes is a revised guideline from HUD stating that home buyers using FHA loans are allowed to tap into the $8,000 first-time home buyer credit to pay closing costs at the time they settle on their home. They still need to have the 3.5% down payment.

HUD sent out a memo in early May announcing this program as many of you readers probably recall, but promptly pulled the memo when reasonable people like me pointed out the half-baked program. By the end of May they were ready to give it another shot.

There has been a ton of confusion over the specifics and, I admit, I was part of that group feeling that there would be loan sharks lining up to charge hefty fees to unsuspecting first-timers.

But the funny part to me is that the fee cap appears to be 2.5%, and the combined loan and fees cannot exceed the tax credit. The tax credit is 10% of the sales price or a maximum of $8,000, so the fee is less than $200? The use of the word “fee” seems vague because isn’t interest on these loans considered a fee? And HUD/FHA is asking the investor (yes, investor) to perform some due diligence to make sure the borrower is not a risk.

FHA expects that entities purchasing tax credit assets will employ appropriate due diligence measures including, but not limited to:

  • Require the homebuyer to draft and provide the IRS form 5405 First-Time Homebuyer Credit.
  • Contact the borrower’s employer and review pay stubs to confirm there are no outstanding garnishments.
  • Review the homebuyer’s credit report to ensure there are no unpaid student loans, or other obligations that could be offset against the credit.
  • Validate that all of the eligibility requirements for the tax credit are fulfilled
  • Review previous tax returns and IRS tax assessment letters, if any, to determine that the borrower does not have unsettled obligations to the IRS

So there will be some extra hoops to jump through, but if borrowers want the cash now then they will need to work just that much harder. The detailed specifics of the “fees” will be essential and if that includes interest? So my best recommendation for those folks planning to exercise this option, plan for settlement at least 60 days from ratification.

Filed Under: Blog Tagged With: $8000 tax credit, buyer, seller

About Doug Francis

A seasoned Realtor specializing in unique and new homes around Vienna, Virginia, Doug has seen consumer behavior, negotiations and communication styles change. At his original brokerage, he was the first agent to add an email address. Imagine! Outside real estate, he plays tennis, is a Washington Capitals fan, spends time with Skipper (his dog), and enjoys the restaurant scene in the DCA. He's a Boston University graduate who feels morning coffee is non-negotiable.

Vienna real estate agent Doug Francis

When we bought our house in Vienna, we were thinking about raising the kids, building an addition, and knowing the neighbors. Today, home buyers are attracted to Vienna because of the sense of community, walkability, and small town lifestyle.

So, what’s next after your 25 years? It’s a conversation many of my clients are having with me as they plan to move to the beach, travel, or get closer to grandkids. Helping them see their future, sell their current home, and move ahead with their updated plan has been an interesting new chapter.

My background: I am an active licensed agent in Virginia, have negotiated hundreds of sales contracts, work at TTR Sotheby’s International Realty in McLean, and still sell homes in all price ranges. I donate to the Town of Vienna tree replacement fund, participate in a neighborhood citizens association, and try my best to stay in shape.

Let’s discuss your moving plans: Email doug@dougfrancis.com or call me at (703) 304-6827 .  Cheers!

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About Doug Francis

I am a Realtor with TTR Sotheby's International Realty® just outside Washington D.C. in Northern Virginia. I'm licensed in Virginia with a focus on Vienna, VA real estate since 1991.

That deep knowledge is valuable, especially in today's fast-paced market where advice is critical. Although many of my clients are personally referred, I am available to help you too and am accepting new clients right now.

Feel free to contact me at 703-304-6827 or email me at doug@dougfrancis.com anytime!

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TTR Sotheby's International Realty
6723 Whittier Avenue McLean, VA 22101

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