Yup, the title is right. There was a whole bunch of information passed around last year about using your $8,000 tax credit as a down payment on your new home. Of course that can’t be true, how can you get money for a tax credit when you haven’t bought the house yet? Well according to HUD that is Fraud! Another problem is that the tax credit can only be given to the qualifying individual and not a third party.
You may be asking yourself how you can get around this, well if you qualify for the tax credit and you are getting an FHA loan or another qualifying Government agency loan, you may receive a tax credit advance with a secondary lien against the home.
The following are the conditions for this:
- the tax credit advance and the FHA-insured first mortgage may not result in cash back to the buyer
- the second lien may not exceed the total amount needed for down payment, closing costs and prepaid expenses
- the secondary financing may be “soft”, meaning no payments for a period of time or require monthly payments
- payments must be deferred for 36 months and cannot be used in the first mortgage qualifying ratios
- if the secondary financing has a short repayment term, there must also be a provision that if the borrower fails to pay by deadline, principal and interest payments either begin automatically or the loan converts to a “soft” second
- the secondary financing cannot require a balloon payment before the first ten years