HUD to Monetize Tax Credit for Down Payment…

Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, on Tuesday said that the Federal Housing Administration is going to permit its lenders to allow first time home buyers to use the $8,000 tax credit as a down payment.

For IRS definitions of the tax credit, and access to Form 5405,  click here…

Said Donovan… “We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment”

The proposal, hailed by home builders and Realtors, is drawing some comparisons to the Down Payment Assistance Program that the FHA had worked to shut down. Congress ended the program last year that allowed home sellers to fund down payments to home buyers through nonprofit groups, and the FHA has blamed that program for an outsized share of loan defaults. Under the old program, nonprofit groups would “gift” the 3% minimum down payment to a home buyer, often funded by the seller of the home. Buyers would move into the home without paying any of their own money for the down payment.

The FHA is in the process of finalizing the new program, which will allow approved lenders, non-profits, and state and local governments to fund short-term loans that could be used as down payments to be repaid once the borrower received the tax credit. Once they received their tax credit, they would pay off the short-term loan and put equity into their home. This will allow eligible home buyers to access the funds immediately at the closing table. Right now, home buyers must wait until they file their taxes to receive the credit.

Currently, the FHA requires a minimum 3.5% down payment on loans backed by the agency, which means that buyers could put little or nothing down on homes up to $230,000.

For full Wall Street Journal Article, click here…
For full Realtor Magazine Article, click here…