Yeah --- it's back. Great advice for "one who knows". Please read.
IT'S BACK....believe it or not ML-09-15 with attachments are back. Called Using First-Time Homebuyer Tax Credits so here are the guidelines:
The first thing to keep in mind is you must follow IRS guidance to see if you are even eligible for this tax credit. that website is http://www.irs.gov/newroom/article/0,,id=204671,00.html?portal7. Leave it to the IRS to have such a difficult link. Second piece, Pursuant to 31 U.S.C. 3727 and 26 U.S.C. 6402, a refund of the first-time homebuyer credit will be made by the IRS only to the taxpayer, not to a third party. Short version, any refund issued cannot be assigned by a taxpayer to a third party.
So, what are some of the rules this time around? Here are the bullet points right from the Mortgagee Letter HUD issued:
- The tax credit advance, when combined with the FHA-insured first mortgage MAY NOT RESULT in CASH BACK to the BORROWER
- The second lien may not exceed the total amount needed for the down payment, closing cost, and prepaid expenses...meaning if the total is $5000 and they qualify for $8000 the second lien can only be for the $5000..if confused reread the first bullet point.
- Secondary financing may be "soft" (silent) or require a monthly repayment.
- If payments are required, they must be included within the QUALIFYING RATIOS and, when combined with the first mortgage, CANNOT EXCEED THE BORROWER'S REASONABLE ABILITY TO PAY.
- Payments must be deferred at least 36 months to NOT BE INCLUDED IN THE QUALIFY RATIOS.
- If the tax credit advance loan has a short term for repayment, it must also provide that if the borrower fails to repay by the DESIGNED DEADLINE, PRINCIPAL AND INTEREST PAYMENTS BEGIN AUTOMATICALLY OR THE LOAN CONVERTS TO A "SOFT" SECOND (there is that word again "soft")
- The secondary financing may not require a baloon payment before ten years.
WHAT??? Wait, there's more bullet points titled Purchase of Tax Credit: FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, State, and Local governmental agencies and instrumentalities thereof may purchase the tax credit anticipated by the homebuyer.
- The proceeds of the sale of the tax credit MAY NOT EXCEED THE ANTICIPATED TAX CREDIT DUE THE HOMEBUYER based on the COMPUTATIONS OF FORM IRS 5405;
- The borrower must submit a signed certification that the tax credit is not subject to offset due to other indebtedness. Translation, the borrower cannot pay off other debt in the loan and can not have IRS obligations due.
- A Copy of the borrower's tax refund and/or the Form 5405 must be collected and retained
- Fees...remember this one...now there is a limit...cannot exceed 2.5% of the anticipated credit.
- The homeowner's downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity). Accordingly the proceeds of the sale of the tax credit to FHA-approved mortgagees, the seller, or any person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down the interest rate, or other closing costs. What this tells me if the lender or anyone with a financial interest in this transaction does a purchase of the tax credit then the borrower still has to come up with the 3.5% downpayment requirement from their own allowable sources.
Show Me The Money!!! Once again HUD has managed to say you could do something while at the same time making it so difficult that it is going to be a miracle to figure out how to do this. This much I know REALTORS....don't get out there too far with this....right now there is not one investor who has said they will buy these loans and while I commend HUD for putting limits on FEES and CHARGES it is once again short on detail....like how does anyone actually get paid back?
HAVE A GREAT DAY!!!
Kevin M. Breeland
Residential Mortgage of South Carolina, LLC
427 Johnnie Dodds Rd.
Mount Pleasant, SC 29464
Competitive by nature...the Best by choice!