Buyers – The First Time Buyer Credit Can Now Be A Downpayment

I’ve written a few times here on the blog now about the First Time Buyer Tax Credit, and one of the things that kept getting thrown about was whether the credit could be used as a downpayment. For the longest time, the answer was no, but recently that’s all changed – kind of.

At the National Association of Home Builders Spring Board of Directors meeting (could they come up with a longer phrase?), HUD Secretary Shaun Donovan (he looks kind of mean, doesn’t he?) made the announcement that for buyers able to utilize the First Time Buyer Tax Credit, the $8000 credit can be used for a downpayment on FHA loans to help cover things like closing costs, or putting down more than the FHA-required 3.5%.  The reason I said “kind of” above is that HUD is saying the credit can’t be used to cover the 3.5% that a buyer would have to put down, so on a $150000 house a buyer is still going to have to come up with $5250 to bring to closing – many were hoping that the tax credit could be used to cover that 3.5% requirement.  No dice.  Here’s the full text of the announcement.

“We believe this is a real win for everyone,” said Donovan. “Today, the Obama Administration is taking another important step toward accelerating the recovery of the nation’s housing market. Families will now be able to apply their anticipated tax credit toward their home purchase right away. At the same time we are putting safeguards in place to ensure that consumers will be protected from unscrupulous lenders. What we’re doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing.”

I’ve heard of one national bank who’s working on a program that would allow buyers to use the $8000 for their downpayment, but so far I’ve not gotten confirmation that it’s been completed.  Essentially, a lender would give you an additional $8000 “loan” at closing to take care of things like your downpayment, closing costs, etc., but I guess the question is when would the bank be reimbursed from the federal government.   However it shakes down, that’s the right step to take, in my opinion.  In the meantime, if you’re a first time buyer without the 3.5% downpayment requirement there are still several sources to consider when trying to gather the money, including employer plans, family members, and state and local governments (Blacksburg has a $3000 grant, for instance, available to those who qualify).

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