Some real estate investors assume that the federal first-time home buyer tax credit has little relevance for them.
After all, they already own their own houses, and the $8,000 credit was designed for people who are either buying their very first home -- or they haven't owned one in three years.
But investors should be aware of a couple of recent wrinkles in the tax credit rules that they can put to good use themselves.
Number one: The IRS has interpreted the law to allow unmarried co-purchasers, including investors -- to buy one-to-four unit properties with the credit flowing to a co-purchaser who qualifies for the credit, and will live in one unit, while the other units are rented out.
Number two: The credit itself has just become more attractive for buyers using FHA financing. The Federal Housing Administration has issued new guidance to lenders allowing them to "monetize" the credit and advance cash to first-time purchasers for closing fees and other expenses, including interest rate buydowns.
That, in turn, will allow investors selling houses to directly target first-time buyers who might not have enough money on hand to qualify under regular underwriting standards.
Here's what you need to know about both these opportunities: Gibran Nicholas, chairman of the CMPS Institute -- a training organization for mortgage and financial professionals -- says IRS's guidance on the tax credit allows creative allocations of the credit among co-purchasers of investment property.
The key requirement is that least one co-purchaser qualifies for the credit as a first-time buyer and will live in a unit for at least three years.
For example, say a group of unmarried investors buys a triplex or quadruplex with the intention of renting out two or three units. The credit "can be claimed by one or more of the investors," according to Gibran, as long as they occupy one or more units as their principal homes.
Now to the new "monetization" feature: As of June 1, FHA lenders can loan first-time buyers up to $8,000 on a short-term basis for use on closing and some downpayment costs.
When buyers get their tax credit checks from the IRS, they pay back the lender. FHA buyers will still need to make downpayments of at least three and a half percent of the purchase price of the house from their own resources or gifts from relatives.
But they can use the cash advances from lenders on closing costs, mortgage insurance premiums and to buy down their interest rates .
For more information on the monetization feature, check out HUD's website. Look for Mortgage Letter 09-15 at this link.