Real NEastate: 2009 $8,000 tax credit “advance”

Q: I’ve recently heard that you can use the $8,000 First-time Buyer Tax Credit from the American Recovery and Reinvestment Act now and pay them back when your income tax comes back. How true is it?

A: Across the country there are programs in the works to facilitate use of the first-time home-buyers $8,000 tax credit prior to filing your 2010 income tax return. In some states, these programs already exist and are working to improve housing markets. Locally, however, there are many ideas in the preliminary stages but lenders agree most seem as though they will never come to fruition in the next six months before the credit expires.

The thing is, it’s up to the banks. They have to agree to lend the money that you would get back in 2010 from the tax credit. Lenders are hard-pressed to agree to a second “bridge loan” for the amount a first-time buyer would receive in their tax credit. Mortgage companies and banks see this second loan as a risky proposition. If a buyer owes taxes, for example, they may not receive the entire credit because it will go towards their tax debt.

Pennsylvania Housing Finance Agency started a “Tax Credit Advance Loan Program” to allow first-time buyers to apply a portion of their 2009 credit toward the purchase of their home. To qualify, however, borrowers must use a Keystone Home Loan or Keystone Home Loan PLUS program to finance their home. These mortgage products are typically offered at a much higher rate than an FHA or Conventional loan product in most cases.

The mortgage rules are constantly changing. There are area lenders that are offer Keystone Home Loans and Keystone Home Loan PLUS, but because of the higher rate there’s little interest. Using your tax credit with TCA now could be a great idea in some cases, but not most. Knowing that the average 30-year mortgagee will refinance within seven years, this might be an appealing choice for someone who wants to move now, but doesn’t have the money in the bank. Check out PHFA’s Web site for details and cooperating lenders.

The best idea for a first-time buyer who wants to take advantage of the American Recovery and Reinvestment tax credit, but doesn’t have the money in the bank, is borrow the money from a relative, get a low-interest FHA or conventional loan, buy a home before Dec. 1, 2009 and pay your relative back after your tax check comes back next year.