Today’s first-time homebuyers are practically in for a treat – the other side of the recession means that there are many affordable houses just waiting to be taken off the market. However, one obstacle to getting your first home is always the downpayment. And with many first-timers only able to cover only 4% of a house’s value for down payment (according to the National Association of Realtors), many low-priced homes are left collecting dust.
To encourage people to purchase homes, an $8,000 housing tax credit was included under recently-passed laws. This qualifies as a refundable tax credit for first time homebuyers. Then again, buyers couldn’t collect the $8,000 credit until tax time, making these credits unusable as down payment for mortgages.
Thankfully, new measures proposed by the Department of Housing and Urban Development (HUD) in cooperation with state governments may be able to help homebuyers who are authorized by the Federal Housing Authority (FHA).
Down payment assistance via advanced loan programs
Some states, like Colorado, New Jersey and Missouri, are setting up or have plans that will allow the tax credit to be used immediately. Missouri is the pioneer, with their plan officially in action as of January 14 – a month before the stimulus package was approved.
The Missouri Housing Development Commission Tax Credit Advance Loan program allows the borrower to use up to $6,750 outright for downpayment. The rest of the $8,000 will be left as a protection against unforeseen costs.
The loan is repaid with the incoming first time homebuyer tax credit. If for some reason the borrower cannot repay the loan, it becomes a kind of second mortgage, a 10-year, fixed -rate mortgage with an interest rate a half-point higher than the original mortgage’s interest.
Other states will present their own plans soon.
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