David 's Blog

By now, most of you have heard of the $8,000 tax credit available to first time homebuyers purchasing a primary residence in Phoenix before December 1, 2009.  The question that seems to be on everyone's mind is whether or not the money can be obtained sooner and if so, what can it be used towards?  There have been many announcements and subsequent revisions that have made it all a little confusing.  Here is a breakdown of some of the current policies set forth.

At the end of May 2009, HUD announced that it will allow "monetization" of the tax credit.  This simply means that the anticipated tax credit can be applied towards the purchase of the home immediately rather than waiting to receive the refund.  The guidelines authorize the monetization in a few different ways.

For starters, homebuyers that believe they qualify for the credit are permitted to reduce their income tax withholdings.  This will allow buyers to accumulate more cash reserves for a down payment by increasing their take home pay.  Individuals must be cautious because if the purchase does not occur, the IRS could impose interest and penalty charges on the repayment.

Some state housing finance agencies and other government entities have introduced programs that will provide homebuyers with short-term loans that can be used towards the FHA minimum 3.5% down payment.  Longer term loans that are secured by a second lien on the property are also permitted.  The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs that can be found at http://www.ncsha.org/section.cfm/3/34/2920.  At this time, Arizona does not have any of these programs available.

In addition, FHA approved lenders are allowed to provide bridge financing to the buyer that is secured by the anticipated tax credit.  This amount is permitted to cover closing costs, prepaid expenses and down payments above the FHA minimum of 3.5%.  Unfortunately, there are no lenders participating in such programs at this time.  The broad consensus in the industry is that these loans are not anticipated to surface in the near future.  For additional questions contact David Krushinsky at 602-695-7575 or david.krushinsky@wjbradley.com.

With Phoenix home prices at an all time low, first-time homebuyers are in a prime position to maximize their opportunities in today's real estate market, especially with the authorization of the $8,000 tax credit by the American Recovery and Reinvestment Act of 2009.  The following is a brief summary of some of the key factors.   

•1.     The tax credit is equal to 10% of the purchase price up to a maximum credit amount of $8,000. 

•2.    Applies to "first-time homebuyers", which is classified as a buyer that has not owned a primary residence in the last three years.

•3.    Residence must be purchased after January 1, 2009 and before December 1, 2009.

•4.    Any single family residence, including condos and townhouses are eligible.

•5.    The full credit amount is available to individuals with an AGI less than $75,000 ($150,000 for joint return).  There is a phase out period for an AGI up to $95,000 ($170,000 for joint return).

•6.    The tax credit is refundable.  The credit amount is used to reduce or eliminate the tax liability and the remaining balance is then refunded to the purchaser.

•7.    The credit does not have to be repaid unless the home is sold within three years of purchase.  Then the entire credit amount is recaptured upon the sale.

At the end of May 2009, HUD authorized the tax credit to be utilized to cover closing costs and prepaid expenses through state housing authorities, FHA approved non-profit agencies and bridge financing.  However, at this time there does not appear to be any lender participation in this type of loan.  For additional questions contact David Krushinsky at 602-695-7575 or david.krushinsky@wjbradley.com.