It sounded too good to be true, and it is. Using your $8000 first time buyer tax credit to fund the down payment on your new home will not be happening according to an article by Craig Anderson of the Arizona Republic.
Federal officials on Monday reversed an earlier decision to allow first-time home buyers to use an $8,000 tax credit to borrow the down payment on a home.
A week earlier, U.S. Department of Housing and Urban Development Secretary Shaun Donovan had told the National Association of Home Builders that HUD would let banks and local governments offer short-term “bridge loans” to cover the down payment for first-time buyers eligible for the tax credit. The loans would have been available to applicants for federally insured mortgages such as Federal Housing Administration loans.
Garcia-Duarte said the proposal too closely resembled a now-illegal practice known as seller-funded down-payment assistance, which allowed a home’s seller to “gift” the down payment to a specific buyer through a non-profit organization.
Still, Wegner remains optimistic that the government will seek other means to circumvent the FHA’s required 3.5 percent down payment.
“They will probably come out with a zero-down FHA loan starting January 1, once the $8,000 goes away,” he said.
I believe this is the right decision. Yes, it could have meant more sales. But if someone can’t come up with the $2800 down payment ($80k home * 3.5% = $2800, An $80k home would get you the full amount of the credit) should they be buying a home anyway?
Besides, letting the market find its natural balance is the best thing to do. By intervening, we are just prolonging the painful. Artificial low interest rates and low standards of lending, built this mess. Letting the same people prop up prices is not the answer.
BTW: Real estate, as a primary residence or investment, should make sense without banking on out of control appreciation. Appreciation is just the icing on the cake.
Keller Williams Arizona Realty