Thousands of first-time homebuyers will be able to get short-term loans so they can quickly make use of a new $8,000 tax credit to pay for some of the costs of buying a home.
The Federal Housing Administration on Friday released details of a plan that will let borrowers who use FHA loans get advances from lenders, effectively letting them receive the credit in advance so they don’t have to wait to get the money from the IRS.
Most borrowers still will have to come up with the FHA’s required 3.5 percent down payment, unless they work through a state or local housing agency or an approved nonprofit. Ten states have such programs in place, according to the National Council of State Housing Agencies.
But there are many other potential uses for the tax credit, such as for closing costs and fees, or to beef up the down payment beyond the minimum level.
The FHA, which insures about a quarter of new home loans, is projected to guarantee about 2.2 million loans in the next budget year.
Any buyer who has not owned a home in the past three years is considered a first-time buyer and eligible for the program. Borrowers can claim the credit by filing an amended 2008 tax return or can wait for their 2009 return.
The change “will present an enormous benefit for communities struggling to deal with an oversupply of housing,” Housing and Urban Development Secretary Shaun Donovan said.
The tax credit was included in the economic stimulus package signed by President Obama in February. It expires Nov. 30 and is not available to individuals with incomes above $95,000 or couples with incomes above $170,000.
Real estate agents and homebuilders generally welcomed the change. Jerry Howard, chief executive of the National Association of Home Builders, called it a “great step in the right direction.” On Wall Street, shares of such builders as Toll Brothers and D.R. Horton rose on the news.
Still, some real estate agents were concerned that many buyers won’t benefit at all if they can’t use it for a down payment - a big hurdle for many first-time buyers.