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 ( ) 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




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. 


2009 First Time Home Buyer Tax Credit

As an update to a previous post, details are now in on the First Time Home Buyer Credit in the Economic Stimulus Bill (formally called The American Recovery and Reinvestment Act of 2009).  The bill was signed into law on Tuesday, February 17th.


Here’s an overview of the provisions in the bill that will benefit First Time Home Buyers:


·   The tax credit is for first-time home buyers only.  A First-Time Home Buyer is defined as someone who has not owned or lived in a principle residence within the past three years.   

·   The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.  (ex:  Home purchase price $300,000 x 10%= $30,000   Max Tax Credit = $8,000)

·   The tax credit does not have to be repaid.  (unlike the previous credit enacted in 2008)

·   There is a limited window of opportunity. The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.

·   The tax credit is income qualified so is subject to income limitations: single taxpayers will need an adjusted gross income of up to $75,000 for the full credit.  Married couples with incomes up to $150,000 qualify.  Those earning more than these limits may qualify for a reduced credit.

·   The tax credit is “refundable”, meaning even if you have little tax liability and don’t itemize deductions when filing your tax return, a qualified first time home buyer can still take advantage of the credit.

·   You will have to own the home for at least three years to capitalize on the credit.  Should you sell the home before three years, with the exceptions of death or divorce, there is a ‘Recapture’ provision where you would have to return a portion of the credit back to the government.


A note for those first time home buyers who purchased a home prior to Jan 1st, 2009… this bill is not retroactive.  It seems that this bill is to encourage those who have been thinking of purchasing a home to get off the fence to help spur the economy.


However, if you did purchase a home as a first time buyer between April 9, 2008 and December 31, 2008 you may qualify for the $7,500 tax credit and claim this credit on this year’s tax return. 


 A good source for FAQ explanations is


I encourage you to explore Item 19 especially.  This is an interesting strategy for someone planning to purchase their first home this year and how you can take advantage of this tax credit without having to wait till the 2009 tax returns are filed.


I am an instructor of Washington State Housing Finance Commission sponsored First-Time Home Buyer classes, and will be conducting a class on the evenings of Tuesday, March 10th and Thursday, March 12th.  View a schedule of all the sponsored classes at


Complete details of the bill:


The White House opened a website to provide some transparency as to where the money is being spent:


Stimulus – Not all Bad

In reading and trying to stay updated on what details that have been made available on the Economic Stimulus package that has apparently been negotiated and agreed, it appears that the proposed $15,000 Home Buyer Tax Credit was a casualty.  Sort of. 

The overall cost of this credit would have been $35 billion. In its place, a more modest proposal was negotiated that will increase the credit to $8,000 and will also eliminate the repayment requirement currently in place.  In its current format, the $7,500 credit is in effect an interest-free loan that must be repaid within 15 years or when the home is sold, whichever comes first.  Though there is a minor possibiilty that things could still change, it appears that now the $8,000 credit will be an actual credit, not a loan like before so you’ll not have to repay the credit.  So, not all bad news.

One article stated that the credit would be 10% of the home purchase price or $8,000, whichever is less, but haven’t seen anything more to validate or dispute this.  ( )
The Stimulus Home Buyer Credit is income qualified and good for First-Time Home Buyers for houses purchased prior to the end of August 2009. 
A first time home buyer is defined as a person who has not owned or lived in a owned primary residence within the past three years.
The stimulus agreement would also allow taxpayers to deduct the sales tax paid on new car purchases, though not the interest on the new car loan.

President Obama is expected to sign the bill in Denver on Tuesday, February 17th.
 Read the complete stimulus bill here as supplied by consumerism commentary