Make us your home page

Tapping the $8,000 tax credit for homebuyers upfront

WASHINGTON — For the housing market, it's the equivalent of financial alchemy, and it's hot: turning the $8,000 federal home-purchase tax credit, which normally can't be spent until after you receive your refund, into immediate, hard cash available for down payment and closing costs.

Congress' stimulus bill tax credit for 2009 is generating efforts nationwide to find ways to "monetize" it, providing money to buyers who need it for down payments now, not next year after they file their federal returns. The credit is only available to qualified taxpayers who have not owned a house during the previous three years, and who close by Nov. 30, among other requirements. Buyers can amend their 2008 returns to claim the credit or claim it on returns for 2009.

In recent weeks, at least 10 states say they have come up with ways to work this monetary magic. They have created innovative bridge-loan programs that advance credit-eligible purchasers the cash needed for closings. Generally 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.

Buyers in Missouri, the first state to create such a program, can get a no-cost "tax credit advance" of up to 6 percent of the home price. The advance is actually an interest-free second lien that is repayable no later than June 2010, once the buyers have received their $8,000 tax credit.

If buyers can't meet that repayment deadline, the advance morphs into a traditional second mortgage with a 10-year payback term and a fixed interest rate one-half a percentage point higher than their first mortgage rate. The underlying first loans are all fixed-rate 30-year mortgages issued by private lenders participating with the tax-exempt bond programs of the Missouri Housing Development Commission.

Colorado kicked off a similar program, known as "JumpStart," April 14. Delaware, New Jersey, Tennessee, Idaho, Washington, Ohio, Pennsylvania and New Mexico have come out with their own versions, some with modest interest charges on the second mortgage from the beginning.

In Washington, where the state Housing Finance Commission already runs a tax credit bridge-loan program for buyers using its mortgages, state Treasurer James McIntire wants to make it much bigger. He has been pushing for creation of a "public-private" down payment program that could reach far larger numbers of consumers than is possible under the housing commission's current funding constraints.

McIntire has proposed depositing $25 million of state funds into interest-earning accounts at an FDIC-insured bank. The bank would then provide revolving lines of credit to the state housing commission to expand its down payment bridge-loan efforts. In a novel arrangement, the Washington Association of Realtors has pledged $400,000 as a backstop for McIntire's plan to cover any unexpected losses. The state Legislature has authorized the program in its new budget.

Bill Riley, the incoming president of the association, says research by his group has shown that fully half of all would-be first-time buyers in the state "cannot save enough money for the down payment and closing costs" — effectively locking them out of both the $8,000 credit and current low mortgage rates and house prices, even when their monthly incomes qualify them to purchase a home.

McIntire is also trying to convince the Obama administration to allow the state to tap into bridge loan-assisted home buyers' amended 2008 tax returns and be directly assigned all or a portion of the tax credit refunds. Under current IRS rules, according to McIntire, tax refund checks are sent only to the taxpayer's address. To ensure prompt repayment of bridge loans, the state would like to have refunds mailed to the housing finance commission in cases where repayment of a bridge loan is due.

In letters to Treasury Secretary Timothy Geithner and IRS commissioner Douglas Shulman, McIntire argued that credit monetization programs run by states are crucial to the success of the federal effort to stimulate first-time home purchases in 2009. But the states need quick, direct access to federal tax credit dollars to pay back down payment bridge loans, thereby allowing them to loan out more money before the Nov. 30 expiration of the federal credit.

Charles McMillan, president of the National Association of Realtors, sent a similar request to Shulman. An IRS spokesman said officials are reviewing the issue.

Bottom line: Since other state housing agencies reportedly are considering rolling out credit monetization programs on their own, keep your eye on what's happening in your area. A no-cost advance tied to the $8,000 credit just might get you the down payment and closing cash you need.

Ken Harney's can be reached at

Tapping the $8,000 tax credit for homebuyers upfront 05/01/09 [Last modified: Friday, May 1, 2009 7:35am]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Special to the Times.

Join the discussion: Click to view comments, add yours

  1. Last orca calf born in captivity at a SeaWorld park dies


    ORLANDO — The last killer whale born in captivity under SeaWorld's former orca-breeding program died Monday at the company's San Antonio, Texas, park, SeaWorld said.

    Thet orca Takara helps guide her newborn, Kyara, to the water's surface at SeaWorld San Antonio in San Antonio, Texas, in April. Kyara was the final killer whale born under SeaWorld's former orca-breeding program. The Orlando-based company says 3-month-old Kyara died Monday. [Chris Gotshall/SeaWorld Parks & Entertainment via AP]
  2. Miami woman, 74, admits to voter fraud. Does jail await, or will she go free?

    State Roundup

    MIAMI — An 74-year-old woman pleaded guilty Monday to filling out other people's mail-in ballots while working at Miami-Dade's elections department.

    Gladys Coego
  3. Bigger ships carry Georgia ports to record cargo volumes

    Economic Development

    SAVANNAH, Ga. — Bigger ships arriving through an expanded Panama Canal pushed cargo volumes at Georgia's seaports to record levels in fiscal 2017, the Georgia Ports Authority announced Monday.

    The Port of Savannah moved a record 3.85 million container units in fiscal 2017, the state said, benefiting from the larger ships that can now pass through an expanded Panama Canal.
  4. Dragon ride in Harry Potter section of Universal closing for new themed ride


    Universal Orlando announced Monday that it will close Dragon Challenge for a new "highly themed" Harry Potter ride to open in 2019 — sending wizard fans into a guessing game with hopes for a Floo Powder Network or the maze from the Triwizard Tournament.

    Universal Orlando announced Monday that it will close Dragon Challenge on Sept. 5 for a new "highly themed" Harry Potter ride to open in 2019. The ride, originally the Dueling Dragons roller coaster, was renamed and incorporated into the Wizarding World of Harry Potter when the hugely popular area opened in 2010.
  5. Would you let your company implant a chip in you?

    Working Life

    Would you ask an employee to get a chip implanted in her hand? Sounds invasive and intrusive. But come Aug. 1, one company in Wisconsin will be giving it a try.

    Three Square Market - a developer of software used in vending machines - is offering all of its employees the option to get a microchip implanted between the thumb and forefinger. [Photo from video]