Friday it was announced that HUD will now allow people to “monetize” their $8000 tax credit rather than have to wait to get the tax credit from the IRS.
This is big news!
Early in May, HUD Secretary Shaun Donovan made a comment when speaking to a National Association of Realtors meeting about how HUD was considering this change to happen. Until Friday, everyone suspected that something was forthcoming, but no one new for sure until Friday when HUD issued their official Mortgagee Letter 2009-15 which outlined the rules of the program.
Being able to “monetize” the tax credit essentially means that you can use the money that you are going to receive for the credit when buying a home here in Arizona. It is expected that as a result of this tax credit, but to 160,000 families will be able to buy homes.
According to Reuters:
The National Association of Home Builders estimates that the $8,000 first-time homebuyer credit will stimulate 160,000 home sales across the United States — 101,000 purchases from first-time buyers and another 59,000 purchases by existing homeowners who sold dwellings to first-time buyers.
For people who are planning on “monetizing” the tax credit, the most popular question about HUD’s guidance is “can I use the tax credit for my down payment?” and the answer to that question is “yes — but you must have your initial 3.5% down payment first. You cannot use the monetization of the tax credit for the 3.5% down payment.”
Another popular question is “how much does it cost to monetize the tax credit?” The answer to this question is best addressed by HUD in their Mortgagee Letter — they hit the topic head on:
Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer. In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive. (Example: $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)
While many people were hoping that the “monetization program” would allow people to use the tax credit for their down payment, it is difficult to say that HUD did a “bad job” thinking this program through. All in all, I give them high marks for doing whatever they can to help as many people as possible in buying a home without putting loan quality at risk because borrowers don’t have enough vested interest in the transaction.
If you have questions about the monetization plan, be sure to speak with a loan officer at a FHA approved lender – and here are a few other resources as well: