Buyers applying $8K tax credit upfront

Q: Is it true that if you are a first-time homebuyer and you purchase your home in 2009 that you can use the $8,000 tax credit toward the downpayment?

A: You'll find, in the real estate and mortgage world, that there are a number of big gaps between what is allowed, technically, and what is feasible, realistically. You have hit on one of those gaps, my friend.

Mindset Management

Mortgage rules and guidelines change very rapidly these days. It can be very tough to keep up with them, and sometimes difficult to know what you can and cannot do at any given moment in time. It helps to get clear on how these things work, especially when you are dealing with a government-insured mortgage situation.

The U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) set forth the minimum guidelines mortgage lenders must ensure a given loan and borrower meet in order for the lender to obtain the government's insurance on that loan (meaning the government will cover the lender's damages if the borrower defaults on the loan).

However, lenders are able to apply more restrictive guidelines on top of the minimum requirements. So, for example, you'll hear people say that FHA has no minimum FICO score requirement. That's true, but the lenders who actually extend mortgages to consumers do have minimum FICO score requirements.

Since HUD and FHA do not actually make loans, their declarations and guidelines should be thought of as carving out the outer boundaries of the universe of what's possible for federally insured loans. The inner boundaries of that universe -- the bounds of what is actionable, feasible and realistic, per the actual lenders -- are often quite a bit more restrictive.

Similarly, when you read news of government tax credit policies and loan modification programs, you are smart to wait a few weeks, then talk with your mortgage broker or real estate professional to see how the outer boundaries of possibility relate, in actuality, to what you can and cannot do in your personal situation. ...CONTINUED

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