I was just reading that the National Association of Realtors is working with the State of Washington in exploring ways that will put the federal $8000 First-Time Homebuyer tax credit and economic stimulus money coming to the state to use at the closing of a sale.
I’ll be following this to see if this develops into something real. It would be a tremendous benefit for the First Time Home Buyer. It is usually the lack of down payment that is the main barrier to home ownership. Especially for those who have stable incomes and good credit.
In researching this subject, I came across a couple of innovative ways to be able to use this credit as a source to come up with a down payment:
1) get a loan from a family member for the down payment. FHA loans allow the down payment to come from family members, assuming they are in the position to help. Then after the buyer closes on the purchase, amend the 2008 tax return and repay the loan to the family member.
By the way, many conventional loans allow money for the down payment to be gifted. It has to be considered a gift. But I don’t think anything says you couldn’t gift the gift giver back!!
2) buyers can increase their W-4 exemptions so less money is withheld from their paychecks. Then they can file for the tax credit with their 2009 tax return. The buyers just need to make sure they do not change their exemptions to net more than $8,000, the amount of the tax credit.
I also read one way that seems clever, but don’t think I would recommend this without talking with a CPA first.
Here’s what was said: If you meet the qualifications for the First Time Home Buyer Tax Credit (click here for details), you would claim the credit now on your 2008 income tax return. Yes, even if you haven’t purchased a home yet, they’re saying claim the credit now. Then get the money and put it toward the down payment or closing costs. I thought this was clever. Never said it was smart … or legal. Might check with your accountant though, you never know.
The family gift and restructuring your W-4 are legitimate and positive ways to come up with a down payment and be able to take advantage of, not only the $8000 tax credit, but the low interest rates and affordable pricing to purchase your first home now.
Did you know that you may also be able to get money from your IRA or even your 401k? Here’s an article with ten more ways to come up with a down payment to buy your first home.