By now most of you have familiarized yourself with the First Time Home Buyer (“FTHB”) Tax Credit being offered by the Federal Government, however, there have been recent announcements that may result in favorable changes to the rules for everyone involved in any FTHB transaction. 

For those who are not yet familiar with the tax credit, I’ll first give a quick summary of how it works.  The Federal Government is offering a tax credit of 10% of the purchase price or $8,000 (whichever is less) to anyone purchasing a home who has not owned a house in the past 3 years.  Individuals who earn an Adjusted Gross Income (AGI) of less than $75,000 or couples earning less AGI than $95,000 qualify to receive the full tax credit.  People earning more than this but less than $150,000 individually or $190,000 jointly qualify for a pro-rated credit.  To claim the tax credit (which never has to be re-paid if you remain in the home for 3 years), the FTHB can either submit an amended 2008 Federal Tax Return or wait until they file their 2009 Return.  Once the tax return is submitted, the IRS sends a check to the home buyer.  As it stands today, this is only being offered for FTHBs who buy their house by November 30^th, 2009, so the window of opportunity is limited.  It is possible that this time line gets extended, but nothing has been announced yet.

The purpose of the tax credit is to increase home buying and stimulate the economy, but there is one major drawback.  The tax credit program does not offer any up front funds to assist the home buyer with their down payment and closing costs.  Home buyers typically must pay thousands of dollars at closing, not to mention moving costs and other expenses associated with a home purchase.  Because of the amount of money needed to close on a new home, many eligible FTHBs are not able to buy a home and take advantage of the tax credit. 

This may soon change.  According to an article in the Columbus Dispatch, printed May 24^th, 2009, titled, “First-Time Buyers Gain From Policy Change,” those FTHB who qualify for FHA (Federal Housing Administration) insured mortgages “might also be eligible for bridge loans or cash advances – up to $8,000 – that they can use for the down payment, closing costs or other loan expenses pending receipt of their tax credit check from the IRS.”  The article goes on to say that by allowing these funds to be advanced, the number of first time home buyers taking advantage of this tax credit could double.  If that holds true, the FTHB Tax Credit should offer the economic and housing stimulus that it was designed to do.  Real estate professionals of all kind should be aware of this policy change and encourage buyers to take full advantage of this offering.

As this is a recent and large policy change, the details of exactly how the advances will be made are still in the works.  However, to the extent that it is allowed by HUD/FHA guidelines, Ohio Rehab Loans is planning a program that will advance the tax credit funds to your First Time Home Buyers.  Please contact us regarding FTHBs who are interested in having their tax credit funds advanced to them to assist with their down payment and closing costs. 

Please note that this column reflects the opinion of Chris Knoppe.  Comments or questions can be directed to Chris.Knoppe@OhioRehabLoans.com. For more information about Ohio Rehab Loans visit www.OhioRehabLoans.com or call 614-433-0570.