FHA ANNOUNCES CONSUMERS CAN USE THE $8000 TAX CREDIT FOR DOWN PAYMENT
Consumers across the country are now being told they can take advantage of a Federal Housing Administration program to allow qualified home buyers to apply the $8,000 tax credit when purchasing a home.
FHA has said it will now permit its lenders to provide a short-term bridge loan that will let qualified home buyers use the tax credit to either make a larger down payment above the FHA required 3.5 percent, cover closing costs, or buy down their interest rate.
BUT WAIT: Don't get too excited, as nothing from Washington is this easy!
FIRST: if you read the actual Mortgagee letter from HUD, it says "AFTER you contribute your normal and required 3.50% down payment, you can use the $8,000 for a BIGGER down payment." WOW... What a joke Washington! This will have little effect for most buyers.
SECOND: You CAN use the money for closing costs - but most people already just "roll it in", so this option is of little significant help
THIRD: We still need to see how the lenders and banks respond and roll this out to actual Main Street home buyers. We also have to see how the ‘bridge loan' companies respond to this and how they will implement this.
Who is going to lend this short-term money, where is it coming from, how much are they going to charge, how to do you get approved? These and more questions all need to get answered before anyone gets too excited about this news.
We also suspect that the $8000 "loan" minus any fees to get this early from the bridge company won't come cheap!
I think this is a good idea, but clearly Washington has misses the mark (AGAIN), and this deal stinks. We only need the recent examples of FHASecure and Hope For Homeowners to see that what sounds good in Washington doesn't usually play out so good for Main Street.
So while this is good news, it is NOT the homerun that some of us were hoping for - at least not yet.
Joe.... it's good to see that you make it clear that you still must have 3.5% of your own money as the downpayment, before any of the borrowered tax credit could be applied towards the down payment. But in regards to this statement that you made... "We also suspect that the $8000 "loan" minus any fees to get this early from the bridge company won't come cheap!"
This is what is stated in the mortgagee letter, ML 2009-15.
"Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer. In FHA's view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive. (Example: $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)"
And then this is stated at the end...
"FHA will monitor the purchase of tax credit transactions closely. Charging of excessive fees or costs in the purchase of the tax credit or increasing other fees or charges in the transaction without FHA approval may result in referral to the Mortgagee Review Board, and particularly with respect to entities that are not FHA-approved mortgagees, referral to the Federal Trade Commission, or referral to the appropriate State Attorney General office, as may be applicable."
My whole point to these statements is that it looks like you won't be able to make much off that bridge loan. thanks