Great news for first time home buyers across the US came from HUD Secretary Shaun Donovan at a recent directors meeting for the National Association of Home Builders on May 29, 2009. In Donovan's speech he detailed aspects of the tax credit short term loan program and a new tax credit purchase program that will allow first time home buyers access to the $8000 home purchase tax credit authorized by the Obama Aministration earlier in 2009.
The new HUD rules and FHA guidelines allows state housing authority and state agency approved FHA lenders and approved non-profit entities to issue home purchase tax credit short term bridge loans to first time home buyers to let them take advantage of their home purchase tax credit authorized by the Obama Stimulus Plan. The new guidelines also allow these same entities to purchase the home buyer's tax credit for a nominal administrative fee. This is program is called the FHA Tax Credit Purchase Program; the program is detailed below.
FHA Tax Credit Bridge Loan Guidelines
FHA will allowed approved FHA lenders and other approved entities to offer a second lien, second mortgage, short term bridge loan, commiserate with the amount of the expected first time home buyer tax credit due to the home buyer. Below are the general guidelines.
- The bridge loan, second lien cannot be in an amount great enough to exceed that the home buyer needs for down payment and closing costs such that the home buyer gets cash back at settlement.
- The bridge loan, second mortgage must be a "soft second" which means there will be no monthly payments required for at least 3 years.
- If payments are required at all, then they cannot start until 3 years after the second lien is issued.
- Required payments shall not be calculated in the home buyers overall debt to income qualifying ratios.
- If the tax credit advance loan has a short term for repayment, it must also provide that if the borrower fails to repay by the designated deadline, principal and interest payments begin automatically or the loan converts to a soft second.
- The home purchase tax credit secondary financing loan cannot have a balloon payment that calls the loan maturity before 10 years.
FHA Tax Credit Purchase Program
FHA approved mortgage lenders and FHA approved non profit organizations and other Federal, State and local governmental agencies can purchase the first time home buyer tax credit in advance of when the home buyer files for it in their 2009 tax return in 2010.
To be eligible for the Tax Credit Purchase Program
- The proceeds of the sale of the tax credit may not exceed the anticipated tax credit due the home buyer as laid out by the IRS in their filing instructions.
- The home buyer must sign a certification that the tax credit is not subject to offset other indebtedness.
- FHA allows the lender to charge a fee not to exceed 2.5% of the tax credit due to the home buyer for fees and expenses incurred to set up the tax credit purchase.
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