mortgage

Use first-time homebuyer's credit upfront

"So if you want to come up with more down and reduce your monthly payment a little, this would be one way to do it," Collins says.

Also, buyers with other financial obligations -- such as owing back taxes or student loans or having wages garnished -- may not be eligible to sell their credit, since it could be offset by those debts.

HUD spokesman Lemar Wooley says having such financial obligations does not automatically preclude buyers from selling the tax credit, but HUD does advise lenders to "be sure and note the debt in considering the borrower's ability to repay the loan."

Lastly, a tax credit purchase may be subject to nominal administrative fees of no more than 2.5 percent of the amount of the credit.

No matter which monetization option you choose, you cannot receive any money back from it when you close on your home. "It's not designed to be a cash-back event," Collins says.

Where to monetize your credit

Once you know how the monetization of the federal housing tax credit works, it's time to find an organization that participates in such a program. One or more of these groups may be available to you.

State housing agencies: These state-chartered groups are dedicated to affordable housing, and a growing number of them are beginning to offer monetization programs. As of mid-July 2009, 13 state housing agencies offered tax-credit loan programs: Colorado, Delaware, Florida (began Aug. 1), Idaho, Kentucky, Massachusetts, Missouri, Nebraska, New Jersey, Ohio, Texas, Tennessee and Virginia. Be aware that each state agency has its own requirements, and you may not be able to get the full amount of your credit upfront. For example, the Missouri Housing Development Commission only issues bridge loans up to $6,750, and New Mexico's program has maximum income requirements that are lower than the federal cutoff.

Local housing agencies: Under HUD's requirements, housing finance agencies that serve certain cities or communities may issue tax-credit loans or purchase tax credits from homebuyers, but finding one that offers such a program may be difficult.

"Most local housing finance authorities probably don't have the cash lying around to go and do this," says Jim Shaw, executive director of the Capital Area Housing Finance Corp., which serves central Texas. John Murphy, executive director of the National Association of Local Housing Finance Agencies, says he doesn't know of any local housing organizations that are currently monetizing the tax credit.

Private lenders. If you can't find a housing agency that is offering down payment assistance in conjunction with the tax credit, some private FHA-approved lenders may be able to monetize your credit by purchasing it. A searchable database of such lenders is available.

Know your situation

Using your federal housing tax credit well before tax time may seem like a great idea, but it's not the right solution for everyone. For example, buyers interested in selling their credit and using it to make a larger down payment should be wary of doing so if they live in an area where property values are likely to decrease.

"Say your $100,000 home loses value by 10 percent," Collins says. "Your $8,000 credit has been wiped out completely because the value of your home has gone down to $90,000." People who anticipate large income tax bills at the end of the year may also want to wait and use the tax credit when they file their return, he adds.

Though the current credit expires Nov. 30, bills to extend the credit's expiration date and open it up to all homebuyers have been introduced in Congress.

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