Real Estate Information Archive

HUD Secretary Shaun Donovan - in a much anticipated move, announced on 29 May the approval of the use of the 1st Time Home-buyer $8,000 tax credit as down-payment (or closing costs, etc) for FHA buyers.

Mortgagee letter 2009-15's Qualification guidelines are posted on HUD's website. 

I have mixed feelings about this - on the one hand it can be a great vessel for my VA buyer-clients to use another option and move in with more equity, but on the other it amounts to another down-payment assistance program - which have been proven to result in a higher percentage of foreclosures.

Unlike previous programs like Nehemiah - the use of the tax credit is not intended to be a vehicle for lower-income families to purchase homes.  Instead, it's purpose is primarily to free up frozen FHA credit lines by helping first-time home-buyers come up with the money for their 3.5% down-payment.

My mixed feelings come in whenever I see the government figuring out ways to give us a little money in order to borrow a lot of money.  The guidlines seem stricter, though, so I'm hoping the predators don't come back out of their holes to feast on the uneducated and uninformed. 

I would like to know your thoughts about this - I have a feeling the discussions on some of the great real estate forums will center on this issue for quite some time to come.

I read with minor alarm and some excitement a post on Hank Bailey's Athens blog that FHA will soon allow Georgia Home Buyers to use the $8,000 tax credit as a down-payment.

This intrigues me in a couple of ways - most importantly the way it most affects my client base.

I thought of your typical VA homeowner and how they're really screwed in some markets because of financing the funding fee.  Now those same VA folks go to sell their homes in depressed markets only to find that by financing 103% of their home, they do not have the equity to sell and move on.

This FHA option seems excellent as an option for VA Buyers to convert to FHA Buyers and move in with 3.5% equity vs. -3% equity.  Three years later, they can sell the home (even if values have come down slightly - something my area has not done yet). 

This also saves them their VA entitlement down the road.

Imagine the scenario in this market where Sellers are more than happy to pay most (if not all) closing costs and our VA folks can truly reap a more measurable reward for their sacrifices?

The current VA structure, with the hefty funding fee (except for disabled vets), either needs to change, or perhaps undergo some modification to match up with what should no-doubt make a number of VA Buyers convert their applications to save what amounts to at least a 6% swing.

I'm speaking - of course - from an Augusta GA  Home Market perspective where $8,000 down-payment will buy you a very, very nice home indeed.....

The alarm I refer to in my opening statement has to do with the high volume of foreclosures that resulted from down-payment assistance programs nation-wide.  I hope this isn't just feeding the beast and waiting for more turmoil 3-4 years down the road.