The $8,000 First Time Home Buyer Tax Credit  just got even better! You can now get an advance on your $8,000 tax credit at the time you purchase your home.
It allows buyers to use the tax credit for closing costs and additional down payments instead of waiting until you file your tax return. It’s great news for those of you who were planning to buy a home by November 30, 2009.
Tax Credit Advance
The advance on the tax credit will be for buyers who use FHA loans. Borrowers will also be required to make a 3.5% down payment. Borrowers who work with state and local housing finance agencies, government agencies and approved nonprofit groups are also eligible.
Cost of Tax Credit Advance
Being able to access the tax credit ahead of time, is a great idea, but it isn’t free. The Federal Housing Commissioner released a Mortgagee Letter 2009-15  which establishes a maximum on the interest rates and fees:
Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the home buyer.
In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive. (Example: $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)
Zero Down Payment?
Buyers will not be able to use the advance to fund their entire down payment. The FHA loans will still require that the borrower comes up with the 3.5% down payment from their own funds. The tax credit advance can then be applied for a larger down payment in addition to the 3.5%, if the buyer chooses.