HUD Action Allows Home Buyers To Use $8,000 Tax Credit For Downpayments On FHA-Insured Loans

May 13, 2009 - HUD Secretary Shaun Donovan’s decision to allow consumers to use the $8,000 first-time home buyer tax credit to help cover their downpayment and closing costs on FHA-insured mortgages will be a big boost to the housing market, according to the National Association of Home Builders (NAHB).

“The biggest obstacle for first-time buyers is coming up with a downpayment,” said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla. “We commend Secretary Donovan for acting decisively to enable buyers to access the tax credit at the time of closing. This will help to stimulate home sales, stabilize housing and get the economy back on track.”

The measures announced by HUD would allow FHA-approved lenders; federal, state and local government agencies; and FHA-approved non-profit organizations to supply home buyers short-term or “bridge loans” up to the amount of the $8,000 first-time home buyer tax credit.

Longer term loans secured by second liens can also be used by government agencies and FHA-approved non-profit organizations to facilitate home sales. Several state housing finance agencies have introduced such programs and a number of agencies are considering that possibility.

More information about these programs can be found on the National Council of State Housing Agencies Web site at www.ncsha.org/section.cfm/3/34/2920.

Previously, the home buye r would have been unable to access the tax credit until they filed their next annual tax return or an amended 2008 tax return and received the refund from the IRS.

Robson and others NAHB leaders discussed this matter and other housing-related issues with Secretary Donovan last week.

“Secretary Donovan shares our view on the need for a housing and economic recovery,” said Robson. “We appreciate his leadership in moving swiftly to help first-time home buyers to access the tax credit up-front at the time of closing. The timing could not have been better as we are in the midst of the crucial spring home buying season.”

The next step is to see how FHA-approved lenders use HUD’s new guidelines to actually monetize the tax credit for first-time home buyers and structure the payback provisions o f the loans. NAHB encourages lenders to act promptly to put these provisions into place.

To qualify for the tax credit, first-time home buyers must actually close on their home purchase by Dec. 1, 2009. Buyers can take the credit on their 2008 or 2009 income tax return.

For further information about the tax credit – including a detailed question and answer section and a number of home-buying resources for consumers – log on to NAHB’s consumer Web site at www.federalhousingtaxcredit.com. A Spanish version is also available to provide detailed information on the tax credit to Spanish-speaking first-time home buyers.

Avoiding Foreclosure

It's estimated that 33 million home owners are at least one month behind on their mortgage payments. If a homeowner falls behind on their mortgage payments, usually a foreclosure or short sale is coming soon. Most homeowners do not know their options in this situation. It can be very confusing, frustrating, and frightening. Often, the lender is aggressively contacting the homeowner, demanding payment and threatening legal action.

WHAT IS A SHORT SALE?
Some people mistakenly believe that a short sale implies that the sale will go very quickly. Ah, quite the contrary! In a short sale, the mortgage company is involved and must approve the terms of the sale (3rd party approval) thus making the process much longer than a typical sale. When homeowners must sell their home because they can no longer make the payments but the amount owed on the loan is greater than the current value of the home, the home can be sold for less than is owed. The proceeds go to the lender and usually the difference in the sale price and the amount owed is written off by the bank. The bank takes a shortage, which is why it’s called a short sale.

WHAT IS A FORECLOSURE?
When a homeowner defaults on their loan, the lender has the right to evict the homeowners and take possession of the home. This process is call foreclosure. The lender then owns the home and must sell it. This process usually takes six to nine months from the time the first payment is missed.

The first thing the homeowners should know is that there is help available to them. Most people do not even know where to begin to look for assistance, so here’s the Real (Estate) Scoop…

If a homeowner has faced a hardship (i.e. lost job, reduced hours, divorce, illness/disability, drastic rate increase) the first thing they should try to do is a loan modification. Loan Modification is NOT a refinance. There is no credit check or appraisal involved in the transaction. The homeowner keeps their same lender and same loan, the terms are simply modified so that the homeowner is better able to make the payments and the home does not go into short sale or foreclosure. The primary goal of a loan modification is to reduce monthly payments. There are three things that could possibly happen in a loan modification.

1. The term of the loan is extended. For example a 30 year loan would be extended to a 40 year loan, thereby reducing the monthly payment.


2. The interest rate is lowered. This also reduces the monthly payment.


3. The principal amount of the loan is reduced. (This one is rare, but can be done.)

Many states require that an attorney be involved in a loan modification. Maryland is not one of those states, so there are options.

There are FREE or low cost resources available to assist homeowners in dealing with their lender in order to avoid foreclosure. These resources are non-profit organizations and consumer advocacy groups. It’s not necessarily going to be easy (as shown by this ABC News video), but it’s worth the effort to save your home and save your credit.

• Freddie Mac has a great website with links to credit counselors and foreclosure prevention resources. Check out their page.


• The U.S. Department of Housing and Urban Development (HUD) offers help finding a counseling agency near you. Check out their page or call 1-800-569-4287. (This page is also provided in Spanish).


• HUD also has a Guide to Avoiding Foreclosure.

If these options have been exhausted, or the homeowner does not feel comfortable doing the legwork needed to get the loan modification done, there are plenty of reputable lawyers out there who have lots of experience in dealing with lenders and often have much more success getting the loan modification done on behalf of the homeowner. There is a fee for this service. Usually the cost is a couple of thousand dollars. The advantages with this route are:

1. The homeowner has no further communication with the lender. The attorneys & processors speak to the lender on the homeowner’s behalf.


2. These lawyers & staff do this for a living. They have years of experience in this field and are good at it. The results (reduction in monthly payment) they get are usually much better than a homeowner could negotiate independently.


3. A few reputable firms offer a money-back guarantee. If they are unable to get the loan modified to the client’s satisfaction, the homeowner receives their fees back. In essence, they have a great deal of motivation to get the loan successfully modified. If the deal doesn’t get done, they don’t get paid

Contact me for information on reputable lawyers!

The Loan Modification process takes anywhere from 21 to 90 days, so if a homeowner is just a few days from foreclosure, it could be too late to get this done. If a homeowner is just a couple of months behind on payments, the Loan Modification is a great option to try and should be pursued promptly.