Industry NewsMortgage

Tax credit can be used for down payment

FHA issues guidelines to lenders

The Federal Housing Administration has issued formal guidelines allowing first-time homebuyers to apply a federal tax credit of up to $8,000 toward the purchase of a home with an FHA-backed mortgage. The bad news, for those hoping that the initiative would allow homebuyers to buy a home with nothing down, is that the tax credit can't be used to meet the FHA's 3.5 percent minimum down-payment requirement. But the tax credit can be used as an additional down payment and for other closing costs, which can help borrowers obtain a lower interest rate. For the average FHA-insured mortgage of $182,000, buyers must bring to the closing table or finance about $8,600 in costs on top of their down payment -- about $5,460 in closing costs (typically around 3 percent of the sales price) and $3,185 for FHA's initial 1.75 percent mortgage-insurance premium. In announcing the release of the guidelines, Secretary of Housing Shaun Donovan called them "another important step toward acce...