Update to Tax credit as downpayment approved by HUD for Naperville home buyers

Update 06/02/09:

The following paragraph is excerpted from an Illinois Association of Realtors bulletin published June 2, 2009. It addresses what is being done in light of the lack public funded programs in Illinois. FHA approved lenders may come off the sidelines in the near future but for now, they are still examining and evaluating the program.

FHA’s rules allow state housing finance agencies and certain nonprofits to ‘monetize’ the tax credit (depending on the amount of the mortgage). While a short-term bridge loan to monetize the tax credit is not a product immediately available from FHA lenders in Illinois, the IAR is currently working with the Illinois Housing Development Authority to determine the feasibility of developing such a program that can be used in conjunction with an FHA mortgage loan. The tax credit applies to qualifying home purchases made by first-time homebuyers on or after Jan. 1, 2009 and before Dec. 1, 2009. For more details on the tax credit see www.realtor.org. Read theMortgagee Letter 2009-15 regarding the monetization program released by HUD last week.

FHA is not a bad (nor obscure) word!

Last month I had a couple of posts that talked about the effects & opportunities that the Economic Stimulus package presented to the real estate marketplace. I saw bits of press and some Realtor and NAR advertising about the $8000 first time home buyer credit. There were lots of blog posts about its benefits. But is it really understood? Are people really aware of how powerful the benefit is when combined with available FHA mortgage programs?

What brought this back to the front of my mind (no wasteland jokes, please) was a visit to my accountant. We were catching up on family news and she mentioned her daughter – a recent college grad – who had just leased an apartment in Chicago. I asked if they had looked at buying, especially with the new credit. Her answer that it would take a while to save the 20% down payment necessary in today’s market was surprising to me. I asked her if she was aware that with an FHA loan she could put down 3.5%, get a great rate and qualify for the $8000 tax credit. Her answer, obviously was no. (ok, should I have been quicker to get this scenario in front of my clients? Yes.)

So, presented here, is a purchase scenario for a first time buyer in the Chicago area market. Note that differences in property taxes will affect the potential tax savings. As always, check with your personal tax adviser for details and implications for you.  

This scenario estimates the potential tax savings to a first time home buyer purchasing a home under an FHA program that calls for 3.5% down payment. Assuming the buyer(s) eligibility for the new 1st time buyers credit of $8000 and deductible mortgage interest and property taxes, the first year tax savings could be significant. The 2 views below look at a full year tax savings (12 months) or optionally a mid year close which would yield a reduced, but still significant itemized deduction.

*These projections/estimates are not intended to replace the advice of a tax professional. Each case is different and should be reviewed by the appropriate professional. As always, I am available to discuss your plans. Please contact me at your convenience.

This combination of FHA financing and first time buyers credit is only available (as of this writing) until December 1, 2009. Is there someone in your family who could take advantage of this? Pass this on and let them see what the savings could be.  And oh, by the way, any unused portion of the credit is refunded to you by the government at tax time.)