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Fed Says “No” to $8k Tax Credit For Down Payment
Well, it was a good idea while it lasted. Concerns about similarities between this proposal and seller-funded down payment assistance programs has scuttled the idea before it ever left port.
May. 19, 2009 12:00 AM
The Arizona Republic / J. Craig AndersonFederal officials on Monday reversed an earlier decision to allow first-time home buyers to use an $8,000 tax credit to borrow the down payment on a home.
A week earlier, U.S. Department of Housing and Urban Development Secretary Shaun Donovan had told the National Association of Home Builders that HUD would let banks and local governments offer short-term “bridge loans” to cover the down payment for first-time buyers eligible for the tax credit. The loans would have been available to applicants for federally insured mortgages such as Federal Housing Administration loans.Lenders, home builders and real- estate agents had reacted favorably to the bridge-loan proposal, saying it would open up the housing market to more first-time buyers.
However, not everyone was in favor of using the tax credit as collateral on a down-payment loan.
“That tax credit should be savings, not debt,” said Patricia Garcia-Duarte, executive director of Neighborhood Housing Services in Phoenix.Garcia-Duarte said the proposal too closely resembled a now-illegal practice known as seller-funded down-payment assistance, which allowed a home’s seller to “gift” the down payment to a specific buyer through a non-profit organization.
Phoenix loan originator Dean Wegner was among the housing-industry professionals who had expressed enthusiasm about the bridge-loan plan.
Wegner said the program would have boosted local home sales, but he added that the bridge loans likely would have come with a high interest rate.
The loans also could have created income-tax issues, according to the IRS officials who shot down HUD’s plan.
Still, Wegner remains optimistic that the government will seek other means to circumvent the FHA’s required 3.5 percent down payment.
“They will probably come out with a zero-down FHA loan starting January 1, once the $8,000 goes away,” he said.
Reach the reporter at 602-444-8681 or craig.anderson@arizonarepublic.com.
May 23rd, 2009 at 1:27 pm
Hi, nice posts there
thank’s for the interesting information
August 9th, 2009 at 3:25 am
Confirm this is just a rejection of the $8000 credit to be included in the 3.5% down requirement for the FHA Loan? So, you can’t include it into your 3.5% down payment, but you can add it onto your 3.5% down payment making it a higher down payment…. I’d much rather have a higher down payment.
August 10th, 2009 at 8:23 am
Yes exactly, you can add it to your 3.5% down payment if you want,, increasing your equity position, or you can use it for closing costs, but you must contribute the FHA statutory 3.5% minimum down payment from you own funds (or gift funds).
Keep in mind however that HUD giving the banks permission to “monetize” the tax credit via short-term loans to buyers is disingenuous. That’s like me offering for you to loan buyers the tax credit. Just ‘cuz I say it’s okey doesn’t mean you want to do it.