The Obama administration’s $8,000 tax credit has already made a small dent in South Florida’s inventory of unsold homes, a number now shrinking at an accelerated pace. Realtors hope the credit might become a more active catalyst after an announcement this week by U.S. Housing and Urban Development Secretary Shaun Donovan that the credit can be used for down payments up front.
The credit — offered to certain first-time homebuyers and buyers who have not owned a home in three years — is already bringing police officers, teachers, young couples and others who had been renting into the real estate market, particularly for single-family homes in the $120,000 to $250,000 range.
Currently, qualifying buyers apply for the credit, file an amended tax return and wait for a check from the IRS.
Under the new plan, the government would permit lenders to issue short-term loans allowing buyers to use the credit as down payment assistance. The details have not been worked out on how lenders will issue the down payment loans before the government offers the credit, but realtors who work with first-time homebuyers are optimistic.
“I absolutely think it will bring a plethora of potential buyers that have being sitting on the fence to come to the plate and purchase if their down payment out of pocket is little to no money,” said Michael Citron, a realtor with ReMax Park Creek who teaches educational workshops for first-time homebuyers.
Citron said since the credit went into effect his team of himself and another realtor closed on 15 homes, of which at least eight had buyers using the tax credit.
But so far the credit has done little to help condo buyers. The problem is that most lenders require 20 percent down on a condo loan, and the $8,000 credit only comes into play after the closing, said Maji Pace Ramos, a realtor with Coldwell Banker in Miami, who covers Miami Beach, Coconut Grove, the Biscayne Corridor and Southwest Broward. Many first time homebuyers cannot come up with the required 20 percent down.
“This will change everything,” Pace Ramos said of HUD’s announcement this week. For example, the buyer who has $10,000 available now for downpayment on a $90,000 condo could use the $8,000 credit to put them over the threshold for the required amount upfront.
Pace Ramos says about 40 percent of her buyers are applying for the tax credit.
The measures announced by HUD would allow FHA-approved lenders; federal, state and local government agencies; and FHA-approved non-profit organizations to supply home buyers short-term or “bridge” loans up to the amount of the $8,000 first-time home buyer tax credit, according to a press release by the National Association of Home Builders. The advances take the form of second mortgages — with or without interest charges — that become due and payable whenever purchasers receive their refunds from the IRS.
Pace Ramos said she wishes the credit was also available to other home buyers, such as the manager who sells a home in Ohio to relocate to Miami or a military person who recently sold a home near his or her previous duty station.
But for first-time buyers, it’s an attractive option. Citron said buyers with good jobs who are looking at single-family homes can take out FHA loans, locking in low interest rates and paying a 3.5 percent down payment. They can file for their credit immediately. “It is driving a lot of people into the market,” he said.
To qualify for the tax credit, first-time homebuyers must close on their home purchase by Dec. 1, 2009. Buyers can take the credit on their 2008 or 2009 income tax return. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. Buyers must own their homes for three years.