Will the IRS make your downpayment?

Just today HUD announced that first time home buyers can use the $8,000 tax rebate for first-time-home-buyers for a down payment on their home. Here is the announcement dated today. Thanks to Howard Nugent of Wells Fargo for this timely news.

Previously you were only able to get this tax rebate after you closed on your house. You would close on the home and then apply for your tax rebate. If you hadn’t payed $8,000 in taxes for the past year you were/are able to stretch this rebate over a couple years.

Exactly how the new down payment program will work is very murky. Are you going to count on the IRS to send you the down payment money? How many forms will be needed to make sure this money is there on time?

Apparently you will not receive the money directly from the IRS, it will be give as a second mortgage that you can use to pay your closing costs and prepaids. You still need to come up with 3.5% of the loan amount with your own money but the the tax rebate money can be used for everything else. After you close and you actually receive this rebate, you can use it to pay off your second mortgage.

Personally, I will be surprised if this actually helps many buyers. It may work out great for a few buyers qualify with just the right qualifications. Lenders may bear the burden of sorting this out over time. They are the ones who will have to figure out the logistics of how much money a buyer really can hope to receive from the IRS and what are the chances that the money will really be there to close the deal.

Still, it’s interesting news worth watching.