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Jul 5, 2009 
There’s been a lot of spin from the press and HUD about the First Time Buyers Tax Credit. According to Julian Hebron of RPM Mortgage, the bottom line is that you can’t expect the credit to help you with your purchase. Lenders aren’t prepared to factor the credit in to their programs it will take time (1-3 months in Julian’s estimate) for lenders to catch up to the program.
The reason is because homebuyers must live in the property and prove it’s owner-occupied for 3 tax filing years following purchase. So lenders assume significant risk (default, foreclosure, and sale-before-3-years risk) buying out tax credits in order for borrower to apply it to closing.
When lenders do finally figure out how to apply the credit, borrowers will have to pay for the privilege, fees likely to be deducted from the credit. Below are some additional notes on how this IRS credit situation is evolving. Items 8-9 pertain to the FHA-lender credit purchases.
1. The IRS tax credit refund can be made only to the taxpayer and not a third party.
2. Government agencies may offer tax credit advances with second liens.
3. The buyer cannot get cash back through the tax credit advance.
4. The 2nd lien may not exceed the down payment, closing costs, and prepaid expenses.
5. The 2nd lien may be “soft” or require payments.
6. Payments on 2nd liens must be included in ratios unless deferred for at least 36 months.
7. Balloon payments on 2nd liens may not be before 10 years.
8. FHA approved lenders and FHA approved non-profits may purchase the tax credit.
9. Tax credit purchaser may not charge more than 2.5% of the tax credit as a fee.
10. IRS may deduct from the tax credit: unpaid student loans, tax liens and garnishments.
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