Q&A - Tax Credit

2009 Tax Credit

By Elizabeth H. Feather, Esq.

Q: Can qualifying first-time homebuyers immediately apply their anticipated tax credit to their purchase?

A: In an effort to stabilize the economy and promote home sales, the Obama Administration announced on May 29, 2009 that the $8,000 first-time homebuyer tax credit authorized by the American Recovery and Reinvestment Act of 2009 can be immediately utilized by first-time homebuyers rather making homebuyers wait to receive the benefits of the credit with their 2009 federal income taxes. To qualify for immediate use of the tax credit, however, the first-time homebuyers must purchase a FHA-insured home. FHA-approved lenders are permitted to convert the credit into available funds for the first-time homebuyers. The amount of the mortgage will dictate how much of the tax credit can be liquidated for present use. The funds can then be used toward the homebuyers' down payment or closing costs. As you probably are aware, a minimum 3.5% down payment is required when homebuyers apply for a FHA-insured mortgage. Accordingly, the tax credit can only be applied to the homebuyers' down payment in excess of 3.5% of the appraised value of the property or the homebuyers' closing costs. This additional down payment or payment of closing costs may lower the homebuyers' interest rate. With the immediate application of the anticipated tax credit, first-time homebuyers are now in the driver's seat, shopping around for the best home price and the best services instead of relying on seller assistance.

Ms. Feather is an attorney with Caldwell & Kearns, which serves as general counsel to PAR. A substantial portion of her practice is dedicated to providing licensure compliance services to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. She routinely counsels clients on estate planning and estate administration matters and is also one of the voices of the PAR Legal Hotline.