Note: This is something that has not yet happened, but may soon happen. I originally posted this information about the 8000 tax credit being used as a down payment on my main site, and thought it was relevant enough to share with everyone as to what may soon be around the corner. I once posted something about the then-pending 15,000 tax credit which passed into law as a 8,000 tax credit - so I have some experience as to how things change before they actually become official.
But I thought everyone would be interested to know what may be lurking in the near future.
Can you use the 8000 tax credit as a down payment for your home?
Not yet.
But that may change soon.
Yesterday, Secretary of Housing and Urban Development Shaun Donovan gave a prepared speech at the National Association of Realtors Real Estate Summit. He said something that was probably beyond interesting when he mentioned that FHA was currently working on a proposal that may involve people being able to use the 8000 tax credit as a down payment.
An excerpt from that speech regarding FHA’s position on the 8000 tax credit being used as a down payment:
And we are taking action to further help the housing market recover. I’m excited to announce here at NAR that FHA’s policy on the “monetization” of the first-time homebuyer tax credit will soon be published. I know that you’ve been waiting anxiously to hear FHA’s position on the matter. We, like you, believe that this new tax credit is not only a tremendous opportunity for first-time homebuyers, but also an enormous benefit for communities struggling to deal with an oversupply of housing. According to estimates by the National Association of Home Builders, this new tax credit will stimulate 160,000 home sales across the nation - 101,000 of which will be first time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first time buyer purchased their home.
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 downpayment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to “monetize” the tax credit through short-term bridge loans. 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. FHA will be publishing the details shortly.
Enabling first time homebuyers to use the 8000 tax credit as a down payment would be a big win for the market - it would allow many more people to move into a home who currently may not have enough for a down payment.
We will be sure to keep you posted on developments in this situation as the happen.
(h/t Mark Madsen at MyFHAMortgageBlog for sharing the video about the 8000 tax credit being used as a down payment and the guys at ThinkBigWorkSmall)
Last 5 posts in Uncategorized
- Social Networking: A Virtual Landscape for the Real Estate Market - October 22nd, 2009
- How to boost your credit score – Part 1 - October 15th, 2009
- FTC Video On Foreclosure Scams - October 1st, 2009
- Why you should consider doing everything possible to AVOID foreclosure - September 25th, 2009
- "There Will Be Death Panels Enacted By This Congress" - September 25th, 2009
- Stumble it!
- Categories: Uncategorized
Comments
17 Comments so far
Jim Rockwell
Given that it was zero down financing that got us into this real estate/financial institution mess in the first place you would think that we would not go back to the same failed policies so quickly. In most parts of the country with starter homes available for $100,000.00 plus or minus, with sellers providing a closing cost allowance, which is still allowed, this equates to paying buyers to move into a home.
This moves us past having a short term memory. We are right smack in the middle of the mess and people are proposing zero down financing as a solution? Brain dead!
Instead, how about proposing a home buying credit for move up buyers or investors. This will stimulate the segment of the home inventory that is moving most slowly, the homes above entry level. It will even allow sellers of entry level homes to price better, thus allowing first time buyers a better selection of homes at a lower price. The difference here is that you are stimulating people to buy who have a down payment in the new home they are purchasing. With some skin in the game they are much less likely to walk away the moment they have a problem in their life.
I know some people’s rebuttal. Many home owners do not have any equity and would not be able to move up. That group has already been taken care of by the 100’s of billions of dollars that the Obama administration has allocated to loan modifications, a policy that is questionable from the outset, with 50% of all loan mods needing being in trouble again within 6 months. Only 2.4 billion has been allocated to stimulating home purchases(300,000 home buyers X $8,000.00 first time home buyer’s credit).
The Obama administation has been woefully inadequate in stimulating home purchases and spent way too much of the tax payer’s money saving people that probably should have never bought a home in the first place.
Make anyone that wants to buy a home have some skin in the game, otherwise you are just leading more people down the path to foreclosure and prolonging this real estate depression we are in.
Investors and second home buyers are the two groups we want buying homes that we have not stimulated so far. Banks are now
requiring 20% down or more and being very critical at the underwriting stage. Given that homes have fallen in value across the country, in most locations 20-40%, combining with a 20% or more down payment requirement and you have a very safe home buyer that the United States tax payer will not be bailing out in the future.
Mark Madsen
“Given that it was zero down financing that got us into this real estate/financial institution mess in the first place you would think that we would not go back to the same failed policies so quickly.”
I believe that it was much more than just 100% financing that got us into the current mess.
100% no doc, <600 fico, day out of bk,2 yr ARM with hard pre-pay, no VOR…… probably had more to do with foreclosures than just zero down loan options.
However, I do agree that it is fair to ask buyers for a little skin in the game (3.5% FHA), especially since prices have dropped to affordable levels.
The problem with restricting the incentive to move-up buyers only is that most of them will still need to include first-time buyers in that scenario.
Justin McHood
@Jim,
Thanks for stopping by — I agree that this is a problem on many levels. And I have been a loan officer to know that I have seen my fair share of people who helped us get where we are today with all of those things that @Mark described.
But I think most would agree that a homeowner having “skin in the game” is a good thing.
Note the word “most”.
Justin
Is The Government Inflating A New Housing Bubble? at The Brian Sullivan Blog
[...] http://www.zillow.com/blog/mortgage/2009/05/13/fha-to-allow-8000-tax-credit-to-be-used-as-downpaymen... [...]
Rick
When will these banking and mortgage people ever learn that it’s extremely important for home buyers to make a down payment. This will reduce the bank’s risks, which is something they want and need. Also, as you mentioned this is going to artificially raise prices again, which theoretically is what caused the last bubble, and got us into this mess in the first place!
Unbelievable!!!
Justin McHood
@Rick,
Thanks for stopping by.
You can see a similar thought (dare I call it a rant?) that I had about this here:
http://www.arizonamortgageteam.com/8000-tax-credit-bridge-loan-bridge-to-where/
Strange times indeed.
Justin
Eric
This incessant moaning about “skin in the game” and housing now being “affordable” is ridiculous. Does anyone have any numbers that say this housing crisis is only affecting people who have been in their homes for less than a year or less than two years? I ask for these numbers because we are set to close on a home end of June and it looks like our PITI will be about $1700 on our $250k condo, one would think that $1700 over one or two years would suit your skin in the game drum beating. Of course, I am sure you will all hold me in contempt as a disable veteran who should be ashamed of taking advantage of my zero down, no funding fee, employer paid closing costs, home purchase.
We have allowed people to be foreclosed for YEARS; why don’t you blame the geniuses that decided they should develop credit default swaps with 30:1 leveraging and in turn tying mortgages to the world economy. Instead you want INVESTORS who did more to create this mess, to get a tax credit. For some strange reason I cannot find a “starter home” in Chicago for “only” $100,000 but maybe I could if the investors and flippers did not drive prices through the roof.
Mark Madsen
Eric,
Great point on the Credit Default Swaps and VA
Here is an article about those that will probably get you even more fired up. http://www.guaranteedlm.net/2009/05/credit-default-swaps-explained/
I’ll clarify my “skin in the game” comment after listening to your point of view. Investors and property flippers should be required to put money down on a new home.
Thanks for your comments
mm
Eric
I get fired up, sorry for the pejoratives
My friends look to my daily facebook status rants to see what is going on in the economy, 
Thanks for having open ears and mind!
Sadly, I have seen those clips about 20 times; who knew that we would all have to become financial advisors and economists!
Mark Madsen
The truth is, we all should have been acting more like financial advisors and economists a long time ago.
Monica
Quick question for the author or anyone who has any idea– Is there really a deadline on the 8,000 rebate? and if so do you think that they will extend it?
Thanks,
Young professional who appreciates any help with purchasing a first home.
Justin McHood
@Monica,
Yes, as of right now, there really is a deadline — and I don’t know for sure how anyone would know if it will be extended.
Here is a helpful site with many answers to many different questions about the 8000 tax credit:
http://www.federalhousingtaxcredit.com/2009/index.html
Good luck!
Justin
Work The Dollar » HUD loaning the $8,000 housing stimulus credit
[...] Zillow Article on Credit [...]
john
ok…I have been a mortgage broker for 15 years and here is my take. You dont get to recovery by waiting for someone to have 20% down. Without going back to the way it was a little before the crash you are not going to recover period! I am not saying give people with a 400 beacon score a 100% stated 2 year ARM but, We need the guideline to loosen up to get investors, firt time homebuyers, and move ups to start buying again!! Once we are out of recession tighten all you want to…but not now!!
sue
I think the tax credit is ridiculous in some respects. I can see giving first time home buyers a break but why not add something for someone like us. We own one home. We would like to buy a foreclosure for my homeless son who can’t find a job because he can’t find a stable place to live and is in a cycle he can’t get out of. We are NOT investors. So why can’t they put in there a one time “second home” purchase can qualify. The reason I think this would be a fantastic thing is there are a TON of foreclosures out there that are in rapid states of deterioration. So to restore it would be phenomenal for the community, and would supply work to independent contactors and instead of an investor flipping it to profit, it’s going to low income people who deserve to be in there.
But because we can’t get that few extra thousand we need, we can’t afford to do this. We’re on the edge of affording it and this tax incentive would be the thing that allows us to do it and everyone would win.
But no. We don’t qualify because we don’t own a home. And no, my kid has no credit so can’t get it. Sad.
Benjamin
Ok I am the first time homebuyer. I am 26 just finished college and now I am looking for a house. My question is can I use the 8K as part of my down payment on a house in Kentucky? this would really help me out HUGE if I could get that done. Right now I am getting a FHA Loan and just need the 3%. Thanks in advance for the answers
jona
@Sue, why is your son homeless if you’re not?