Tax Credit Advance Loan Program waiting for Special Session

Included in the budget passed by the Washington State Legislature is a $25 million dollar fund to implement a Tax Credit Advance Loan Program for First Time Home Buyers.  (The definition of a First Time Home Buyer is basically if you have not owned a home in the past Three years.)

Introduced by Washington State Treasurer James McIntire, this program will allow qualified borrowers to get immediate access to the $8,000 Federal Tax Credit for use at closing as a home down payment.  Like the Federal Credit, this loan program expires November 30, 2009.

When does it start?

The Tax Credit Advance Loan Program is part of the 2009 Washington State budget which has not yet been signed off by Governor Gregoire.  Though the Legislature adjourned on April 26th, there is apparently going to be a need for a special session before the budget can be implemented.  The special session is expected to convene sometime within the next few weeks and is expected to be very short, possibly held to one day.  Since this proposal is not a bill, which can be signed into law separately, but part of the budget … it can not be implemented until the budget is approved and signed by Governor Gregoire.

The Washington State Tax Credit Advance Loan Program is in essence a bridge loan that will be administered by the Washington State Housing Finance Commission (WSHFC).  The $25 million of state funds would be deposited into an FDIC-insured bank. The bank would then provide revolving lines of credit to the WSHFC expand its current down payment bridge-loan program.

To help offset concern of any unexpected losses, The Washington Association of Realtors (NAR) has pledged $400,000 to cover the credit advance transactions.

State Treasurer McIntire is also trying to convince the Obama administration to allow the state to tap into bridge-loan-assisted homebuyers’ amended 2008 tax returns and be directly assigned the repayment of the lien. Under current IRS rules, tax-refund checks are sent only to the taxpayer’s address. To ensure prompt repayment of bridge loans, the state would like to have refunds mailed directly to the Washington State Housing Finance Commission where repayment of a bridge loan is due.

Research by the NAR has shown that fully half of all would-be first-time home buyers in the State of Washington”cannot save enough money for the down payment and closing costs” –  even though they could afford the monthly payments.

Once implemented, the Washington State Tax Credit Advance Loan Program will help First Time Home Buyers to take advantage of the current low mortgage rates and house prices, and the Federal $8,000 tax Credit.

Steve Swanson teaches First Time Home Buyer classes in Redmond Kirkland Bellevue Bothell and Sammamish sponsored by the Washington State Housing Finance Commission.  To Register for an upcoming class go to www.hellorealestate.net or view the class schedule for your area at http://wshfc.org/buyers/schedule.asp

Using First Time Buyer Credit as Home Down payment

Hot off the Press is news from the Washington State Legislature provided to me by Georgette Ballard, Sr Loan Officer with PrimeLending.  This budget provision would help First Time Home Buyers with their down payment thus helping home sellers getting their house sold.  If signed by Governor Gregoire, this would be the first program of it’s kind in the country. 

When the Legislature passed the state budget, it included a budget provision authorizing the State Treasurer to invest $25 million in a short-term loan program in order to provide an advance payment of the federal first-time home buyers’ tax credit. This program was designed to allow potential home buyers to use the tax credit as down payment when closing the sale of their first home.

The budget plan creates a Tax Credit Advance Loan Program.  This program makes the $8,000 federal tax credit for first-time home buyers available at the closing of a home sale instead of only when a buyer files a tax return. The Washington State Housing Finance Commission would provide the down payment loans. The plan is that home buyers would repay the $8,000 after filing an amended tax return and receive a tax refund.

Here are the basics: 

  • The State Treasurer’s Office would make a deposit in an FDIC-insured, short-term account with a selected financial institution. The investment would earn a low interest rate to stay fully insured under federal guidelines.
  • Realtors and other stakeholders back the loans with funds to provide security against losses.
  • The financial institution provides the Washington State Housing Finance Commission a line of credit to advance up to $8,000 to qualified first-time home buyers for a down-payment.
  • Buyers repay the advance loan after filing for and receiving the tax credit. 

The goal of the program is to get the money to buyers efficiently and return the federal refund quickly so that the WSHFC ( www.wshfc.org ) can turn it around to provide more assistance. The funds could revolve as many as three times before the tax credit expires, reaching up to 9,000 first-time home buyers. These “bridge loans” would expire at the same time as the federal tax credit, on Nov. 30.

Steve Swanson teaches First Time Home Buyer Classes sponsored by the Washington State Housing Finance Commission.  Learn more or register for an upcoming class at www.helloRealEstate.net

 

 

Ways to use $8000 tax credit to purchase first home

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.