Using Tax Credit to Help Pay For Closing Costs (FHA Loan)
Hello!
(Originally posted on RedFin forum)
I'm currently in the process of buying my first home and would like to use the $8k tax credit to help pay for my closing costs. I have heard conflicting arguments on whether or not I can do this (my mortgage company has not been able to answer my questions) so I was hoping someone here would be able to shed some light on this.
Here are my facts:
-My home loan is a FHA (FHA loan plus a 203k streamline to pay for rehab repairs)
-I am coming up with the 3.5% downpayment myself ($8k tax credit not used for that)
It is my recollection that there was talk originally to be able to use the tax credit for down payment assistance but it is my understanding that was shot down by the IRS. I have heard that it is possible to use the tax credit for down payment or closing costs as long as it does not go towards the 3.5% down payment and the home loan is through FHA. Luckily this is exactly what I am doing.
Can anyone confirm this? If this is correct, how do I go about in using the funds at time of closing?
Thank you for your help!
(Originally posted on RedFin forum)
I'm currently in the process of buying my first home and would like to use the $8k tax credit to help pay for my closing costs. I have heard conflicting arguments on whether or not I can do this (my mortgage company has not been able to answer my questions) so I was hoping someone here would be able to shed some light on this.
Here are my facts:
-My home loan is a FHA (FHA loan plus a 203k streamline to pay for rehab repairs)
-I am coming up with the 3.5% downpayment myself ($8k tax credit not used for that)
It is my recollection that there was talk originally to be able to use the tax credit for down payment assistance but it is my understanding that was shot down by the IRS. I have heard that it is possible to use the tax credit for down payment or closing costs as long as it does not go towards the 3.5% down payment and the home loan is through FHA. Luckily this is exactly what I am doing.
Can anyone confirm this? If this is correct, how do I go about in using the funds at time of closing?
Thank you for your help!
Comments
Um, how about the question of whether or not you should do it. If you cannot afford closing costs and something of a down payment, you cannot afford the house.
The tax credit is a great way to refund your emergency fund or perhaps purchase some move-in upgrades in the house (recarpet or repaint for instance). It's a terribly way to come up with your closing costs though. I guess my proof of that assertion is that similar tricks were a primary cause of the current record housing declines sweeping across America.
Wow. Do you always decide to post up an opinion rather than an answer? You and my mother should get together and complain about the world. Be careful that you don't bump your heads riding that high horse...
I totally understand where you are coming from on this and yes, I can pay for the total amount of my closing costs and down payment out of my pocket but would rather supplement some of it with the tax credit. The reason for this is because I had a motorcycle accident a few months back and would rather use my pocket money to pay for my medical bills.
Anyone else have an answer (or opinion)?
I called the FHA info line but they told me to goto a page on the HUD site. I went to that page and it said to call the FHA info line.
I'm doing FHA as well, and closing costs will simply be part of the mortgage - or the seller/bank will pay them. I come up with the down payment... that's it. Yes, I will be borrowing money to pay closing, if that's necessary, but at these rates, why not? I'd rather use actual cash to pay down higher interest debt (that I have, yes. If you don't, you're lucky, but if you have enough pocket money to pay for medical bills, you might consider spending some of it on insurance).
Maybe -I'm- confused, but if I have to come up with down + closing, I can barely afford to buy a manufactured house in Gold Bar. In the price range I'm in, closing costs are about the same as the down payment.
If your agent or mortgage broker can't explain this more clearly than I can, you definitely need to find a new agent and broker. Or read the above cited article, although really that's THEIR job.
I honestly intend - in this market - to put as little down into any transaction as possible. I also am trying to spend as little as possible, and pick up a repossessed casualty of the bubble. Wish me luck
Unless you HAVE to buy now, I don't know why you would be. I'm just sick of renting. Well, there's a lot more to it than that, but this isn't the bottom - that's a cruel joke.
After talking to my lender a bit more they indicated that it is up to the discretion of the lender whether or not they want to participate in this bridge-loan program. My lender has indicated that they do not participate.
sigh...
Blah, blah. Yay conservative rhetoric.
No, people can't afford to keep their houses because they overpaid, or refinanced for ridiculous amounts, and lost their jobs. You can be as conservative as you want, and as well-vested as you wish, but your income stream determines what you can afford. Lose your job, and lose your house (and more, probably). All these people with great credit are losing their jobs. I bet they came up with closing costs! And a down payment! And guess what?
Now they'll lose it all.
I've been paying landlords mortgages for 15 years, without fail. My earning potential determines what I can afford, not whether I was born with a silver spoon in my mouth.
Sure, being fiscally conservative is wise, but some of us take a slightly different approach to life. Deal. You don't live forever, and you sure as hell can't take it with you when you go.
Please tell me you're not trying to buy a house for the maximum amount you've been pre-approved for. Uh, you might want to leave some wiggle room in there, sir.
The lender lends you a big chunk of money. Apparently they don't want to give you any more. Don't let them. I'm no fiscal conservative, but I DO think that strict lending practices are a very good idea.
However, FICO scores have proven to be pretty useless as indicators of income stream stability. Suprise!
Directly from the article.
Your income stream is of PRIMARY concern in this economy, unless you can pay for the entire house in cash. I doubt this is the case.
The unaffordable monthly payment problem was amplified by people having no equity. If they had made a decent down payment they'd be able to sell it at a price that would cover what they owe. Or they'd have enough equity to refi and take advantage of lower rates.
If a person hasn't saved enough each month to build a decent down payment, how the hell are they going to come up with the extra coin each month to cover the expenses that come with owning?
That was my original point. If renting costs X and buying costs 1.2X, you should have some of that extra .2X to show for yourself, proving that you can indeed afford the house.
And yet, recent history of this USA depicts a lot of people keeping their jobs and losing their homes. At least until the losses stemming from those foreclosures pushed the rest of the economy into recession.
Also, anyone so worried about losing their stream of income that they can't pony up closing costs is probably better off, if just for their own health, to keep renting.
Oh heck no. I'm approved for $350k and the house that I'm buying is less than $270k (including the 203k streamline loan for rehab). I wanted to keep it low so I could put money away into home improvement costs and my savings.
What if renting costs X and buying costs .75X? Or .65X? Does it make sense to continue renting? Sure, I guess, if in a year or so buying will cost .5X.
In our case, it actually IS cheaper to buy.
A lot of people weren't worried about losing their income stream until they lost it. I'm not worried about losing mine... but if I get in a car wreck and suffer TBI, I certainly will.
Right now my mental health is suffering due to the whims and general greed of landlords.
Can you explain to me this scenario of keeping your job and losing your home? Other than just walking away from an underwater house?
So - do you blame the housing market for the failure of the US auto industry? You don't think outsourcing (just to give one example) affected things at all?
Excellent.
Same strategy here. If you take our household gross and multiply it by 3x, we can theoretically afford a 360k house. Hah. I'm not going above 200k. I need that extra coin every month to pay down debt and put back into the house.
I suspect if you are finding buying in King County cheaper (especially 25%-35% cheaper) you are either making an apples-to-oranges comparison or you are leaving out significant factors in your comparison. However, if your analysis is accurate, I retract my statement that saving for a down payment can serve as a good proxy for whether or not you'll actually be able to afford your new home.
Yes, in short it was called 2007 (and somewhat 2006). The stock market was soaring, unemployment was reasonable, and yet foreclosures were accelerating. Often on homes that had only been owned for a matter of months. I can't find the evidence right now, but there were reports of rising delinquencies even on the first payment for new mortgages.
That's a nonsequitor and completely unrelated to anything I said. It's just you trying to set up a strawman argument. But, I'll answer anyways. The failure of the US auto industry was obviously the result of poor strategic thinking by those businesses. As proof, Ford is not doing all that poorly. Sure, they are suffering through the recession, but they are not in a condition of imminent collapse. Hence, the term "failure of the US auto industry" is even a misnomer.
Many homebuyers were sold ARM's with initial low "teaser" rates or Option-ARMs (Pick-a-Pay). Although initially affordable, the mortgage payments would kick up dramatically after a short period.