Tax Credit for FHA down payment
The U.S. Department of Housing and Urban Development issued Mortgagee Letter 2009-15 on May 11, 2009. A portion of this letter outlined the use of the First-Time Homebuyer Tax Credits for use as a Down payment on an FHA mortgage.
Section II. FHA Guidance
The Tax Credit: Secondary Financing:
Entities that can offer tax credit advances with second liens:
- Federal, state, and local governmental agencies and nonprofit instrumentalities of government.
- FHA-approved nonprofits.
Additional information about these entities:
- Government agencies and instrumentalities of government are described in handbook HUD-4155.1 Rev-5, Paragraphs 1-13 A and B.
- FHA-approved nonprofits can be found, per each Homeownership Center jurisdiction, at: www.hud.gov/offices/hsg/sfh/np/np_hoc.cfm
How the secondary financing works:
- The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the borrower. The second lien may not exceed the total needed for the down payment, closing costs and prepaid expenses.
- The tax credit advance must provide that if the borrower does not repay the amount borrowed by the designated deadline, that principal and interest payments begin automatically.
- If payments on the tax credit advance are required, they must be included in qualifying the borrower and, when combined with the first mortgage, cannot exceed the borrower’s reasonable ability to pay.
- If payments on the tax credit are deferred, the deferment must be for a minimum of 36 months in order for the payment to not be included in the qualifying ratios.
- The tax credit advance second mortgage must not provide for a balloon payment before ten years.
The Tax Credit: Short-Term Loan:
Entities that can offer the tax credit advance with short-term loans:
- Federal, state, and local governmental agencies and nonprofit instrumentalities of government, FHA-approved nonprofits, and FHA-approved mortgagees may provide short term or “bridge loans” secured only by the anticipated tax credit due the homebuyer as collateral.
How the Short-term tax credit advance loan works:
- The amount that may be borrowed in this manner may not exceed the anticipated tax credit due the homebuyer based on the computations of form IRS 5405.
- Fees and charges for the tax credit advance loan are not to exceed a nominal amount necessary for preparing and administering the loan.
This information was obtained from the Mortgagee Letter 2009-15 issued by the U.S. Department of Housing and Urban Development.
Although several states already have plans to handle these types of transactions, Nevada so far does not. However, Nevada Rural Housing and CSA are developing a plan and expect to be able to implement it by July.
Should you have any questions or need further information,
please don’t hesitate to contact me, (775) 220-1630
Or visit my blog at www.SellingNorthernNV.com
Joshua Talayka
Chase International
Office: 775 850 5900
Toll Free: 877 922 5900
Cell: 775 220 1630
Fax: 775 850 5901
985 Damonte Ranch Pkwy, Ste. 110
Reno, Nevada (NV) 89521
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