Using Homebuyer Tax Credit for Down Payment

Buyers have inquired, and articles have been written about the possibility of using the first time homebuyer tax credit, or at least part of the funds, for a down payment on the purchase of home.  I had written previously about this opportunity..

The key to having funds be used for a down payment was finding someone who would fund this amount because it would really have to be a loan. Well, I actually saw this happen.  I recently had a closing in October, where the buyer for my sold listing actually did use the tax credit for the down payment.  The transaction contained seller’s assist (where the seller pays part of the closing fees) and the balance due after that was around $4k. PHFA (Pennsylvania Housing Financing Agency) backed the balance due amount. The buyer’s have 12 months to pay the approximately $4K amount back as an interest free loan. The funds to pay back would come after filing their taxes in the spring.  What we were told at the closing is, if they chose not to pay it off it would become a loan and would be a lien against the property.

What I did find out at the closing was the PHFA had run out of funds at the point of this closing so we were not likely to see funding again in the near future from PHFA. It was a great deal for the buyer because with the seller assist, VA backed funding, and the tax credit funds for the down payment, the cash due at closing from the buyer was “Zero dollars”.   This is extremely rare but apparently it does happen. The interesting thing was the buyer even had a credit due them at closing but due to the loan rules the buyer was not able to get any money in their pocket after the transaction so it had to go onto the principle of their loan.

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Photo Copyright 2007, Amy S Myers

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