According to Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Administration is going to permit its lenders to allow home buyers to use the $8,000 tax credit as a down payment on the purchase of a new home. He shared this information at midyear legislative meetings held in Washington D.C. on Tuesday.
Up until now, home buyers were only able to obtain the credit at tax filing time. The goal of this change is to allow the FHA home buyer to have upfront access to funds when they close on their home. By permitting this “early” credit, many more people will be able to purchase homes. It also may mean people can spend more on their new home as a result of having up to an additional $8,000 for their down payment. Saving a down payment is often the challenge of the first time home buyer.
Eligible home buyers will be able to access the funds immediately at the closing table because FHA’s approved lenders will be permitted to monetize the tax credit through short-term bridge loans.
While this attempt to further stimulate the market is a valiant one, it may mean that irresponsible buyers could simply use that tax credit to buy the home, default on the mortgage without ever have invested a dime of their own money. Unless the use is still restricted on a certain percentage of the money for purchase comes directly from a buyer’s bank account.
The restrictions/limitations on this new plan have not yet been published. I will follow up when the details are publicized.