Thursday, June 11, 2009

$8,000 Tax Credit as Down Payment?

We’ve had a bunch of buyer questions this week that all sound the same: "Is it true I can use the federal $8,000 first time home buyer's tax credit to cover my down payment?" What folks are asking is, can I buy a house with zero money down?

The simple answer is "No." **

The complicated answer is below. The HUD announcement on May 29, 2009 was written in government-speak so it was confusing (typical!).  The confusion comes from folks who don't specify the difference between "3.50%  required minimum cash down payment" and "additional down payment".

First time buyers still have to put down cold, hard cash amounting to 3.50% of the purchase price of the house. You can use the tax credit money as an additional down payment above and beyond the 3.50% required minimum down payment.

I wrote about the bridge loan issue earlier.  Justin McHood of The Arizona Mortgage Team wrote on this topic several times recently. Justin is one of our broker’s trusted loan officers.

The National Association of Home Builders has put out a statement on this topic too:

A home buyer still has to provide the 3.5 percent downpayment from his or her own funds. The money from the short-term loan can be used to pay closing costs and prepaid expenses, such as escrows for taxes, insurance, and community association assessments. These funds could also be used to make a larger downpayment or to “buy down” the interest rate on the mortgage loan.

Confusingly, the NAHB piece goes on to state that the advance bridge loan on the buyer's tax credit can be used towards the required minimum 3.50% down payment. As blogging mortgage pro Rhonda Porter points out, this is incorrect.

Sadly, just this morning I found two blogs via Technorati that state the tax credit can be used as the down payment. As noted above, they're confusing the issue by failing to distinguish between "required minimum" and "additional" down payment monies.

Between the (edited) NAHB statement, Justin McHood, Rhonda Porter and we here at The Phoenix Agents at Thompson's Realty, hopefully the topic is clear. But it is a very confusing and rapidly evolving situation, so don’t feel bad about having additional questions. Don’t hesitate to contact us for more information pertinent to your situation.

** I believe that VA loans are still available on a zero-down basis; check with your lender or contact us for our list of mortgage pro's.