Jeremy's Blog

Tax Credit Update

HUD has republished Mortgagee Letter 2009-15. The jist of it is that Buyers CAN NOT use the tax credit to meet the minimum downpayment requirements. HUD wants the buyers to have some "skin" in the game.

At quick glance, FHA has changed the letter by prohibiting FHA approved lenders and FHA approved nonprofits from using the tax credit to meet the 3.5% minimum downpayment requirement. While FHA approved lenders can "purchase" the tax credit, "the proceeds of the sale of the tax credit... may not be used to meet the 3.5% minimum downpayment requirement". The proceeds may be used for additional downpayment (above the minimum 3.5%), buying down the interest rate and closing costs. HUD also effectively capped the lender fee at 2.5% of the tax credit. In addition, HUD has added due diligence requirements for participating lenders.

The letter states:

"The homebuyer's downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity). Accordingly, the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs."