The 2009 Tax Credit as a Down Payment

The 2009 First Time Homebuyer Tax Credit is scheduled to expire on November 30th 2009.  Only transactions that close on or before the cutoff date may qualify for the tax credit, which does carry certain income standards.  Currently, the FHA requires a minimum down payment of 3.5% for its financing alternatives. 


As of May, 2009, the U.S. Department of Housing and Urban Development (HUD) announced changes to the agency’s original position and began allowing first time homebuyers to use the tax credit as part or all of the purchaser’s down payment.  This change opened up an entirely new sector of homebuyers and has sparked increased real estate sales activity.  Currently first time buyers are scurrying to beat the fast-approaching November 30th deadline.


Originally there were eleven states that accepted the HUD revisions.  For use as part of the down payment, the 2009 tax credit can be used as a subordinate loan until such time as the credit is actually received, when it must be applied to the down payment advance.  Qualified homebuyers can use up to $7,000 of the tax credit as part of the down payment as long as it does not exceed 5% of the purchase price.  A $250.00 fee is assessed for this use.  $150.00 is refundable upon repayment of the loan on or before the due date.


The due date of the advance is July 1, 2010.  The loan accrues interest at a rate of 3%.  The loan must be repaid from the borrower’s tax refund. 


The National Association of Realtors was instrumental in assisting Congress with formulating the 2009 Tax Credit, which unlike its predecessor does not require repayment.  The NAR has requested a further expansion of the 2010 credit and recommended that the new bill not be limited to first time homebuyers.  Congress has not responded to this request.


Earlier this summer, Congress was considering a $15,000 tax credit with some limiting income considerations.  As of now, the Obama Administration has not offered support for the increased initiative.




Leave a Reply

Your email address will not be published. Required fields are marked *