Buyers can tap tax credit for down payment
FHA drafting policy on first-time homebuyer credit
By Inman News, Wednesday, May 13, 2009.First-time homebuyers will soon be able to access their $8,000 federal tax credit when closing on a home through a short-term bridge loan that will cover their down payment on FHA-backed loans.
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 Tuesday.
"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 gathering for their midyear conference in Washington, D.C. "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 Memphis Area Home Builders Association is believed to be the first group to obtain approval from the Department of Housing and Urban Development to offer such down-payment bridge loans, the Memphis Daily News reported.
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.
FHA's market share has grown from 1.9 percent in the fourth quarter of 2006, reaching 23.7 percent in the last three months of 2008, and continues to grow, Donovan said. He said FHA is on track to guarantee $290 billion in mortgages in fiscal year 2009, and that the Obama administration's new budget asks lawmakers to approve up to $400 billion in loan guarantees in 2010, or about 2.25 million mortgages. ...CONTINUED
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Submitted by Matt Carter on May 14, 2009 - 10:57am.
Some speculation out there about whether HUD got ahead of itself in announcing this. The "letter to mortgagees" explaining the policy to lenders was apparently withdrawn, perhaps because HUD realized this policy would be bending its own rules on permissible sources of down payment funds. A HUD spokesman just e-mailed me that "The details will be forthcoming," and NAR says it's expecting a formal announcement next week. Heck, wasn't Donovan's speech a "formal announcement?"Submitted by Matt Carter on May 27, 2009 - 9:39am.
Two weeks later, and no sign of 09-ML-15, the "mortgagee letter" that will supposedly lay down the guidelines for tax credit bridge loans. FHA has already gone on and issued 09-ML-16 and 09-ML-17.Submitted by Matt Carter on June 23, 2009 - 11:15am.
If you are just stumbling upon this story for the first time, see May 29 update on publication of the letter. The catch is the tax credit can't be used to meet the FHA's 3.5 percent minimum down-payment requirement, except in conjunction down-payment assistance loans offered by some state housing finance authorities. It can be used as an additional down payment and be applied toward closing costs, which can help lower the interest rate on a loan.