Further clarification of how the First Time Home Buyers Tax Credit can be used for upfront home buying costs with FHA loans was released today. The Department of Housing and Urban Development (HUD) announced that the $8,000 tax credit can be used as money down on top of the 3.5% down payment required by FHA-insured loans. It can also be used for closing costs or to buy points to lower the interest rate.
Previously, it was publicized that the Federal Housing Administration would allow approved lenders to issue short-term bridge loans to monetize the tax credit. This would make it possible for eligible first time home buyers to access the refund money ahead of time and use it at closing. But only this week was it explained that the bridge loans could not be used to pay for the 3.5% down needed to secure an FHA loan. Instead, it can provide additional funds for a bigger down payment or finance closing expenses.
So, qualified first time home buyers (which includes buyers who have not owned a primary residence in three years) can effectually lower monthly payments by putting the tax credit money toward a more substantial down payment or buying down the interest rate. It can also help cover or put a dent in upfront fees paid at the closing table. However buyers choose to use the cash, it provides a great benefit to many FHA borrowers who can get up to $8,000 when they purchase a home before December 1 this year.
For more info on first time home buyer tax credit qualifications, click here.