In the midst of a collapse in the mortgage and financial markets and a tightening of credit underwriting guidelines, is it possible a true No Down Payment opportunity still exists, and is one you can actually get closed? As far fetched as it may sound, the answer is a resounding – yes, maybe!
The American Recovery and Reinvestment Act of 2009 created an incredible opportunity for a group of home-buyers, one that could allow them to purchase a home with ultimately no money invested in the transaction. No down payment or closing costs, as long as the real estate agent and mortgage lender understand the new rules.
Under ARRA, first-time home-buyers are given a tax credit of up to 10% of the purchase price not to exceed $8,000, or $4,000 for married filing separately. This tax credit, unlike the tax credit provided in 2008, does not require the home-buyer to repay the credit, as long as they remain in the home as their primary residence for at least 36 months post closing. Additionally, as of February 25th, the IRS will allow this credit to be taken in either the 2008 or 2009 tax year. The only requirements to receiving the tax credit are, they must purchase the home prior to December 1, 2009 and their adjusted gross income does not exceed $75,000 for single or $150,000 for joint filers.
So what about the No Down Payment and closing costs I spoke about? If you’re working with someone who qualifies as a first-time home-buyer, someone who hasn’t owned a home in the previous 3 years, and you can place them in an FHA mortgage, here’s how it could go together. FHA requires a minimum down payment of 3.5% of the purchase price (must be paid by the buyer), plus they need money for closing costs, unless the seller agrees to pay those costs. If you negotiate the right transaction, your buyer will have no money invested in the transaction, compliments of the government.
Here’s a scenario: You have a buyer purchasing a home for $140,000, they will need $4,900 in down payment and an estimated $2,900 in closing costs (may vary slightly in different areas), for a total of $7,800 invested. If they purchase the home , having the money necessary to close the transaction, they would after closing, immediately file tax return form number 5405 with the IRS (either with their original tax filing or in an amended return, depending when they purchase). The will receive the $8,000 tax credit funds, making their investment in the property zero.
Now you have ability to help many people buy their own home, using this government assistance program, in a time when home buying opportunities are at their highest level. This becomes a win-win-win situation for everyone, go help you community!