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The American Recovery and Reinvestment Act of 2009 offers first time homebuyers ( or to home buyers that have not purchased a home in the past three years) a tax credit of up to $8,000 for purchasing their home before December 1, 2009. The homebuyer receive the credit can only after filing an amended tax return with the Internal Revenue Service . This new Federal Housing Administration rule allows first-time homebuyers using FHA financing to obtain a short term loan from state housing finance agencies and certain non-profits for 10 percent of the home's price, up to the full amount of the tax credit.
Home buyers still have to come up with the original Federal Housing Administration required 3.5 percent down payment themselves. This can come about in a series of ways. Gifting from relatives is an option. Then they can then use the tax credit loan to make a larger down payment or cover other closing costs which in turn could help them qualify for a lower interest rate. The home buyer will be required to repay the loan a few months later after the buyer receives the tax credit from the IRS.
Safeguards are in place to ensure first time home buyers are protected from unscrupulous lenders. FHA states that unlike seller-funded down-payment assistance, which was a vehicle for abuse, the new program will allow home buyers to look around for the best home price and services using their anticipated tax credit.
Lawrence Yun is a chief economist for the National Association of Realtors (NAR). He expects to see more buyers jump off the fence and jump in the market now that they can use the $8,000 tax credit as a downpayment.
“The home buying process takes time,” Yun said. “This summer will gauge the success of the first-time homebuyer tax credit.” While he doesn't anticipate an immediate pickup in the coming months, Yun believes early summer will be a critical indicator of homebuyers' response to the new allowance
It is estimated by the National Association of Home Builders, that the homebuyer tax credit will stimulate 160,000 home sales across the nation – 101,000 of which will be first-time buyers who will apply the tax credit and 59,000 existing homeowners who, because a first-time buyer purchased their home are now able to buy another property. Given FHA's current market share, HUD estimates that thousands of families will be able to snag their American dream by applying the anticipated tax credit toward their purchase of an FHA-insured mortgage.
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