How to Borrow Your Downpayment to Buy a Home in Austin Before December

The $8000 first time homebuyer tax credit can be used as part of your downpayment and closing costs if you buy a home in Austin before November 30th 2009. I’m tired of lenders telling people that it can’t be done. It can, but not all lenders are approved for the program or know about it.

I met a client for a cup of tea yesterday evening and a lender had told her that she would have to come back after saving up a downpayment. I referred her to a lender who can help. Here are the basics:

Am I eligible to borrow my downpayment? If you live in Texas, are a first time home buyer, and earn less than $75000 if filing separately or $150000 if married filing jointly, and you use a participating lender to buy a home before the end of November this year, then you may be eligible. Drop me an email if you would like some lender recommendations.

How do I get the money from my tax credit to purchase a home? You may have read about the Federal tax credit being available after you purchase the home. The Texas Department of Housing and Community Affairs (TDHCA) has introduced two programs which allow you to borrow money from them and repay it with your tax credit:

• 90 day Downpayment Assistance Program. This is essentially a bridge loan to allow you to borrow $7000 of your anticipated federal tax credit to use as closing costs and downpayment.
• Mortgage Advantage Program (MAP). This allows people in the Texas Mortgage Credit (MCC) program to borrow up to $6000 for 120 days. It has more education requirements – read how the MCC can save you $2000 per year over the life of your loan in a previous article.

Read more about the guidelines for the two new TDCHA programs at their website.
Can I get my $8000 tax credit before I buy the home? You can get access to the funds for the closing of your home – when you purchase it. So the $6000 or $7000 is used for allowable closing expenses and downpayments. There are still out of pocket expenses that you pay up front. For example, the earnest money, contract option fee and inspections would have to be paid for. The program itself also carries a $250 fee to set up.

Will the 90 Day Downpayment Assistance Program take care of all my closing costs? It depends on your price point, and which loan program you are using – FHA, Conventional or VA. Let’s look at two quick examples:

Example 1: Purchase price $200,000. FHA loan with a minimum 3.5% downpayment ($7000). Closing costs 1.5% ($3000)

If your Austin Realtor negotiates for the seller to pay your closing costs, and you are eligible for the full $7000 assistance, then you would bring little to the closing table.

Example 2: Purchase price $150,000. FHA loan with a minimum 3.5% downpayment ($5250). Closing costs 1.5% ($2250)

If the seller pays no closing costs, and you are eligible for the full $7000 assistance, then you would bring around $500 to the closing table.

Can I still close in 30 days with these programs? Closing takes a little longer – your lender has to apply for the program money for you, so to be on the safe side, you may need a longer close – 35-45 days.

What does this mean for buyers and sellers? With the current stimulus deadlines of closing by November 30th, and first time homebuyers accounting for as high as 40% of all real estate transactions in some areas of Austin, I would say that November is going to be frantic – people wanting to move by Thanksgiving. Demand for homes in the under $200,000 range may stay high as people look to close before then.

To be on the safe side, I would allow at least 2 months before the end of November to write an offer on a home if you’re thinking of buying and getting the tax credit. It might be a good time to start looking for a home right now.
For first time homeowners, it’s an attractive time to move up to a larger home. There may be a strong demand for your current home from first time homebuyers, and interest rates are still low if you’re considering a bigger mortgage.

It’s entirely possible to buy your first home in Austin with little out of pocket expense. Get in touch if you’d like to find out more or be put in touch with a lender who knows how to do it.

An Austin Realtor is a real estate agent in Austin, Tx. You can search Austin homes for sale at his website. Call or email for more information about buying a home with no downpayment and no closing costs.