In February, Congress passed the American Recovery and Reinvestment Bill of 2009, otherwise known as this year’s stimulus bill. One small part of this bill allows first time home buyers (anyone who hasn’t owned a home in the past three years) to qualify for a $8,000 tax credit.
For individuals or families hoping for some help to move into a house within their reach of affordability, this is an amazing offer. Not only does it help home buyers, it will in theory help stimulate the real estate industry by keeping housing prices from falling further and allowing more people to afford to buy homes.
Even better, this year’s credit does not need to be paid back to the government unlike last year’s $7,500 credit for first time home buyers. The rules for claiming the home buyer credit are not as helpful as they could be, however. If you qualify for the credit, you need to buy the house first, using funds you have or a loan, and then later apply for the credit either in an amended 2008 tax return or your 2009 tax return.
The U.S. Department of Housing and Urban Development wants this benefit to assist home buyers differently. HUD is pushing for the rules to be changed to allow lenders to borrow against the tax credit. If the buyer qualifies, he or she can receive their tax credit up front to be used for completing the down payment or paying closing costs.
If HUD models the first time home buyer’s loan after similar programs offered by a select number of states, the loan would be interest-free as long as it is paid back within a reasonable amount of time. I imagine the grace period would be determined when the rules are set if HUD is successful in getting the rules changed.