Use Your Tax Credit as Downpayment

Applying $8,000 Tax Credit to Upfront Home Purchase Costs

June 19, 2009
Updated November 6, 2009

First-time home buyers may not have to wait until they file their tax returns to get an $8,000 tax credit from the IRS. On May 29, the U.S. Department of Housing and Urban Development announced that FHA-approved lenders may purchase the $8,000 tax credit from qualified home buyers at the time the loan is made. The tax credit is available for first-time home buyers, or those who have not owned homes in the last three years.  In November, 2009, Congress passed legislation that extends the deadline for the tax credit, and expanded who qualifies for it.  See related story.

The change will allow home buyers who qualify for the tax credit to use tax credit funds for closing costs or downpayments if they use FHA-approved lenders. FHA-insured loans still require a 3.5% minimum downpayment.

According to senior HUD officials, FHA-insured loans now account for about 25 percent of new mortgages, up from about two percent of the market only two years ago. If the current rate continues, the FHA will insure approximately 2.2 million mortgages in 2009.

Find out more about the $8,000 tax credit.