Tuesday, April 14, 2009

Property Tax Credit - Can it be Used to Pay for the Down Payment?

We are often asked if the property tax credit (the pro-rated share of the property taxes that is taken out of the seller's account and put into the buyer's account) can be used to pay a part of the buyer's down payment requirement.

The answer is no. However, the property tax credit can be used to pay some of the buyer's closing costs.

As an example, assume someone is buying a house for $100,000 and the down payment is 3.5% of the purchase price, or $3,500. The property tax credit cannot be used to pay any of this amount. It doesn't matter how large the tax credit is - the buyer still has to contribute $3,500 towards the transaction. Depending on the type of loan, the $3,500 can come from a relative or a down payment assistance program, but it can never come from the property tax credit.

Just a reminder - this has NOTHING to do with the $8,000 first-time home buyer credit.

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