You can get your tax credit now

By MARTY KRAMER, Consumer columnist

The U.S. Department of Housing and Urban Development is making it possible to monetize the $8,000 tax credit available to first-time homebuyers. Big whoop, right? What does that even mean?

That’s the problem with words like monetize. You hear it, probably have an idea of its definition, but don’t really understand what it means regarding the tax credit. If the tax credit isn’t about money, then what good is it anyway?

Here’s the deal. The tax credit was rolled out as exactly that: a credit on your federal income tax (or a payment to you if the credit amount exceeds your tax liability). From the start, Texas REALTORS® and homebuyers asked if there was some way to immediately apply that money to the downpayment of the home rather than wait for a “rebate” on your tax return. The answer was no.

“Monetizing the tax credit” is equivalent to changing the answer from no to yes.

This is great news if you’re a first-timer looking to purchase a home. HUD has given instructions to lenders about how buyers can use the credit as part of their downpayment of an FHA-insured home. Buyers must still come up with at least a 3.5% downpayment, which can be a gift from a family member, employer, or nonprofit, charitable organization.

You can use the money to increase your downpayment or pay for normal closing costs. HUD also has instructed that any fees associated with monetizing the tax credit not be excessive. The agency defines this as fees of no more than 2.5% of the anticipated credit. So if you qualify for the maximum $8,000 credit, the fees associated with making that money available at closing could be no more than $200.

Here’s HUD’s news release on the program. The way it actually works is that FHA-approved mortgagees and other qualified entities can buy your tax credit. You get the money now, the lender charges a reasonable fee, and you get thousands of dollars to apply to your home purchase. There are still some details being worked out before lenders in Texas offer this option. When the program is in place in our state, your Texas REALTOR® will be an excellent resource to help you with this and other aspects of your home purchase. Keep in mind that the tax credit is available only until Nov. 30, 2009. After that, there won’t be anything available for you to monetize.