FHA Buyers Can NOT Use Tax Credit For Down Payment!

Author: admin  //  Category: 2009 tax credit, first time home buyers
UPDATE! I just heard through the National Association of Exclusive Buyer Agents that the downpayment monetization idea has been rescinded. No details yet. But for now it is dead.

It looks like first-time homebuyers will soon be able to access their $8,000 federal tax credit when closing on a home t on FHA-backed loans. The method will be hrough a short-term bridge loan that will cover their down payment

The Federal Housing Administration will soon publish a policy that will allow FHA-approved lenders, HUD-approved nonprofits, and state and local housing finance agencies to “monetize” the tax credit through short-term bridge loans, Secretary of Housing Shaun Donovan said on 20090512 in Washington D,C.

“We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan told members of the National Association of Realtors. “We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit.”

The best rates on loans eligible for purchase by Fannie Mae and Freddie Mac require 20 percent down payments, and private mortgage insurers typically require minimum down payments of 5 percent to 10 percent. But FHA’s minimum down-payment requirements remains relatively modest — 3.5 percent.

Donovan said the first-time homebuyer tax credit will benefit communities struggling to deal with an oversupply of housing. He cited estimates by the National Association of Home Builders that the tax credit would spur 160,000 home sales — 101,000 purchases by first-time buyers, and 59,000 purchases by existing homeowners who will be able to trade up because a first-time buyer purchased their home.

The Obama administration’s Making Home Affordable initiative — which is aimed at helping 7 to 9 million homeowners modify or refinance their loans — will also help take pressure off of inventories, Donovan said. Fourteen of the largest mortgage loan servicers have already begun modifying loans under the initiative, he said, and have committed not to foreclose on borrowers unless they have been given an opportunity to qualify for a  modification.

Over the next month or so, the administration expects to see a “substantial increase in loan modifications, which we anticipate will happen quickly and will help decrease the foreclosure sales numbers over the next few months,” Donovan said.

This is very good news for first time home buyers!

To see the whole speech, click here.