This is a trick question as the answer is both yes and no.  Back on May 12th, HUD announced they were in the process of setting guidelines in which the First Time Homebuyer Tax Credit could be used as a down payment to purchase homes using an FHA loan.  This created quite the buzz as rumors had been spreading for a while leading up to this announcement.  Finally on Friday, May 29th HUD announced the details of this their plan.  I'll give you the basic details and then share my thoughts on the subject.

So what does this mean?  First let me say that just because HUD made this announcement it doesn't mean this is necessarily available to anyone in Washington State.  Now that HUD has set out the guidelines, State agencies and FHA-approved Mortgagees must do what is necessary to make this a reality. 

 

So let's get back to details....Basically, the buyer can sell their tax credit to an FHA approved mortgagee, FHA-approved nonprofit organization as well as Federal, state, and local government agencies and that entity will then use the proceeds from the sale to apply towards their closing costs, prepaids, points to buy down the rate or use as additional down payment.  The Lender will then secure a 2nd lien against the property to ensure repayment is made by the buyer.  The tax refund will still go directly to the homebuyer who then will need to pay off the 2nd lien.  Have you ever gone to H&R Block and found out you get a nice refund but don't want to wait to receive it?  H&R Block then gives you the money upfront as a loan that you repay when you receive your refund check.  This is basically the same thing.

 

Now where are the pitfalls in all of this?  First of all, the buyer still needs to have the minimum 3.5% down payment as the tax credit cannot be used as the only source of down payment.  This will still not help the buyers who do not have that money saved or have access to it through a gift.  Secondly, as of this writing, buyers who wish to take advantage of this new guideline from FHA must go through the Washington State Housing Commission.  I am still looking into non-profit agencies to determine if they may be able to assist as well. 

 

HUD was very careful to state that the homebuyer's down payment may not consist of any funds provided by the mortgagee, the Seller or any other person or entity that financially benefits from the transaction.  FHA removed Seller-funded down payment assistance last year due to the high default rate on those mortgages.  It appears as though FHA still feels the buyer should have some "skin in the game". 

 

This announcement by HUD can definitely help lower rates, fees and overall housing payment for those buyers who have the ability to come up with the down payment. If you are interested in taking advantage HUD's gift, I would suggest you move quickly.  Working with the various agencies can and will take time.  I would stress to everyone, don't make your decision on buying based on if you get to use your tax credit now unless it is your only option.  The clock is ticking as the November 30, 2009 deadline to purchase is just around the corner!

 

I would love to hear your feedback to HUD's announcement! 

 

 

 

 

 

Denelle Geibel, Mortgage Planner

(509) 232-7725