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Homebuyer Tax Credit Modified to Require Down Payment

tax credit

The much anticipated and hotly contested homebuyer tax credit is officially back on, though with some big changes.

Borrowers applying for an FHA loan will now be required to come up with a minimum 3.5 percent down payment, but will be able to use the tax credit for additional down payment or for other closing costs.

Originally, the FHA had it worked out to where potential homebuyers could use the tax credit for their entire down payment, though critics seemed to think that resembled questionable seller paid down payment assistance loans too closely.

“Unlike seller-funded down-payment assistance, which was a vehicle for abuse, this program will allow homebuyers to shop for the best home price and services using their anticipated tax credit,” HUD Secretary Shaun Donovan said in a statement.

“We believe this is a real win for everyone,” he said.  “Today, the Obama Administration is taking another important step toward accelerating the recovery of the nation’s housing market.”

“Families will now be able to apply their anticipated tax credit toward their home purchase right away. At the same time we are putting safeguards in place to ensure that consumers will be protected from unscrupulous lenders.”

The FHA will keep close tabs on the program, collecting the names and employer identification numbers of each organization providing the service along with the associated fees and charges.

That said, homeowners should be aware of potential mortgage scams and carefully compare benefits and costs (more than 2.5% of the anticipated credit is considered excessive) when seeking out monetization of the tax credit.

“What we’re doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing.”

Benefit for communities, or benefit for homebuilders?

Oh, a couple of paragraphs later Donovan mentions that the National Association of Homebuilders said the tax credit will help stimulate 160,000 home sales across the nation, so go figure.

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