Aiding home buyers

When Congress passed the First-Time Home Buyer Tax Credit, the intent was to provide an additional financial resource for buyers to utilize. It was based on the idea that the available funding would encourage increased home purchases, and as a result, provide a stimulus for the housing market and economy, while helping stabilize home prices.

Unfortunately, waiting is a part of receiving the finances as it’s disbursed with the filer’s tax return. For many, that down-time might not be an option, as most first-time home buyers need assistance with the down payment and closing costs.
Recognizing the potential problem, the Missouri Housing Development Commission has created a program that will allow those buyers to receive their funds now, through a loan program administered by certified lenders that work with the commission.
“The tax credit has not been a huge incentive to buy homes,” Kathryn Watts, MHDC government affairs liaison, said. “We’ve tried to create a product to bridge that gap.”

Under the commission’s program, MHDC makes a second mortgage to the home buyer at the time of closing worth up to 6 percent of the home purchase price, or a maximum of $6,750. The money can then be used to cover the down payment and closing costs.
“It will then actually encourage first-time home buyers to purchase a home,” Watts said.

MHDC’s second mortgage is paired with a 30-year, fixed rate mortgage for the purchase of the home, with the financing through a MHDC lender. The home buyer can then file for federal tax credit and use the credit refund to pay off the advance loan and satisfy the second mortgage.
Watts noted that the commission expects people who utilize the advance loan program to pay off the interest-free loan when the tax credit is received with their income tax refund. If, however, the borrower does not do that, then the loan will incur interest and the borrower will have to repay the loan’s principal, plus the interest earned, over a 10-year period.

MHDC’s program began Jan. 14 and Watts said that a few people have already applied to take advantage of the special offer, the first of its kind in the nation.
On the federal side of the program, the tax credit functions as an interest-free loan, and because of that, it must be repaid to the government over a period of 15 years. Payments are deducted from the taxpayer’s tax return each year, at a rate proportionate the loan amount.

For example, if the maximum credit of $7,500 was granted, then the taxpayer would repay the loan at a rate of $500 per year, according to the Internal Revenue Service. Therefore, if the tax return was going to be $2,000, the taxpayer would only receive $1,500. Payments do not start until two years after the credit is claimed, meaning a person who claimed the credit in 2008 wouldn’t begin repayment until 2010.

Single taxpayers with incomes up to $75,000 and married taxpayers with incomes up to $150,000 qualify for the federal credit. read more