The government is trying to re-energize the stagnant housing market, and that’s making FHA loans more attractive than ever.
Headlines have pulsed this week with news that the federal stimulus package will include an $8,000 tax credit for people who haven’t owned a home in at least three years, if ever. The Federal Housing Administration has sweetened the deal: Buyers can use that money to pay for closing costs or even offset the 3.5 percent minimum down payment requirements for FHA loans.
But it’s only with an FHA loan that buyers can use the tax credit for closing costs. Some housing experts expect the stimulus provision to help boost home sales in coming months. The National Association of Home Builders estimates that 40,000 more homes will be purchased because of the FHA initiative, in addition to the 160,000 sales already expected as a result of the tax credit.
Home buyers also have some flexibility in claiming the credit on their tax returns. They can choose to claim the credit for 2009 or file an amended 2008 return to receive the credit this year.
The new FHA initiative stipulates that homebuyers can use the tax credit to offset the down payment only if a state housing agency is handling the loan. In all other cases, the tax credit can be used for closing costs, boosting a down payment or to pare down the interest rate.
There are a couple of other points of note for potential buyers:
- Income limits are a part of the process. The threshold for individuals is $75,000 and $150,000 for those filing jointly.
- So far, close to a dozen states are providing buyers with bridge loans to spur purchases immediately, well in advance of the next tax filing. These loans come with little or no interest and are to be repaid when the tax credit is applied the following year. The list of states includes Colorado, Kentucky, Missouri and Tennessee.
- The FHA is offering advances on the tax credit so homebuyers don’t have to wait.