FHA announced a new program on Friday to help first-time home buyers use their tax credit to pay for closing costs. The IRS is offering a tax credit of 10% of the purchase price of the home, up to a maximum of $8,000 to help spur home sales in a struggling real estate market. The policy change allows a first-time home buyer to apply the tax credit towards their closing costs or part of their down payment without having to wait until they file their tax return next year.
Apparently FHA will still require that buyers pay for the minimum 3.5% down payment that FHA loans require, but you can use the credit towards down payments over the 3.5% minimum, or you can use the credit to reduce your closing costs and transaction fees.
This should be advantageous for home buyers in Washington state. There has been considerable discussion about the State of Washington offering a bridge loan program to give buyers access to the credit earlier. However, according to their website the program is “currently in a stage of discussion and development and has not been approved by the IRS and other interested parties.”
There are obviously some logistics to this process that must be ironed out between the IRS and lenders offering FHA loans. If you are a first-time home buyer interested in this program, I would stay in close contact with your mortgage professional to understand when and how they will be implementing this program.