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Can you use the 8000 tax credit for your New Mexico FHA down payment?

It is possible that this isn’t the first site that you have been to looking for information about the 8000 tax credit.  If that is the case, you probably have noticed that there is an abundance of varying information presented.  Last month on May 12th, Secretary of Housing and Urban Development Shaun Donovan created a fervor in real estate and mortgage industry when he announced in a speech to National Association of Realtors that FHA was working on an initiative to allow first time home buyers to use the 8000 tax credit created by the American Recovery and Reinvestment Act of 2009 for their down payment on a new home.  Unfortunately, within a couple of days, FHA retracted the announcement as there were a number of issues with the logistics and legality of the 8000 tax credit down payment plan. On May 29th, FHA re-issued Mortgagee Letter 2009-15 with details on how the 8000 tax credit could be used by first time home buyers in conjunction with an FHA loan in New Mexico.

The following are highlights of the FHA program for the use of the 8000 tax credit for first time home buyers in New Mexico:

Can the New Mexico 8000 tax credit be used for a first time home buyer’s down payment?

Yes, but only after the first time home buyer has provided the initial 3.5% FHA down payment.  After that, additional down payment funds can come from the New Mexico 8000 tax credit.  To be clear, a first time homebuyer can NOT use the New Mexico 8000 tax credit to meet the minimum FHA 3.5% down payment requirement.

Can the New Mexico 8000 tax credit be used to pay for the buyer’s closing costs?

Yes, a New Mexico first time home buyer can use the 8000 tax credit for closing costs that are normally associated with buying a home (e.g. lender fees, points, title fees, inspection fees, etc.).

How does the New Mexico first time home buyer obtain upfront funds from the 8000 tax credit to use to help buy a house?

FHA will permit FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, state, and local governmental agencies and instrumentalities to purchase the 8000 tax credit anticipated by the New Mexico first time home buyer.  In other words, one of the aforementioned sources can loan the New Mexico first time home buyer the money they expect to get resulting from the 8000 tax credit for a regulated fee.  In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive.  The source of the loan can securitize the loan as a second lien on the house and may choose to require monthly payments or not.  The IRS will not allow the second lien to have a balloon payment under 10 years.

How does the New Mexico first time home buyer request the 8000 tax credit from the IRS?

After the first time home buyer has bought the house …
1. the first time home buyer can wait until next year and file IRS form 5405 “First-Time Homebuyer” along with his or her 2009 tax return.
2. the first time home buyer can file IRS form 5405 with his or her amended 2008 tax return.
3. if the first time home buyer filed for an extension to the filing of their 2008 tax returs, they can submit IRS form 5405 along with his or her 2008 tax return.

Other resources regarding the 8000 tax credit for first time home buyers in New Mexico.

Explanation of the original 7500 tax credit created by the Housing and Economic Recovery Act of 2008.

Summary of the new 2009 New Mexico 8000 tax credit created by the American Recovery and Reinvestment Act of 2009.

Answers to Frequently Asked Questions about the New Mexico 8000 tax credit for first time home buyers provided by the National Association of Home Builders.

Steve Lines
FHA Mortgage Specialist
email: slines@bestfhalender.com
www.bestFHAlender.com
Academy Mortgage
New Mexico Mortgage License #1451