The bottom line is that the tax credit can be “monetized” and applied to the down payment or to cover closing costs on an FHA-backed loan — but the money can’t be used to meet the FHA’s 3.5 percent minimum down-payment requirement.

See Mortgagee Letter 2009-15.

However, there are state housing finance agencies that offer soft seconds — including some programs that take the borrower’s anticipated tax credit into account as part of the underwriting process — that CAN be applied to FHA’s minimum down payment requirements.

In other words, you can’t use money obtained solely on your expectation that you will be getting this tax credit to FHA’s 3.5 percent minimum down payment requirement. But you can use it to make an additional down payment and for closing costs.

And your eligibility for the tax credit may help you obtain a soft second loan from a state HFA that you can use to meet FHA’s 3.4 percent down payment requirement.

Here are some states that offer first-time homebuyer tax credit loan programs.

http://www.ncsha.org/section.cfm/3/34/2920

Lucky for us, we have put together a program that monetizes the tax credit to be used as a downpayment. We started and got this program approved before any of this HUD non-sense.

It meets current FHA guidelines, a handful of lenders have already approved it and we are moving forward with it.

Interested? Visit my website www.fthbtaxcreditsolutions.com to learn more about it!

Today, I talked to someone who is only interested in a bank owned for the $2500. credit being offered locally if you buy a bank owned home. Often it’s not the best deal.

I think first time homebuyers will ultimately be better off taking the tax credit.

1. Agencies and lenders must be approved who have funds for the down payment.

2. A Change to the HUD guidelines on the time frame that is allowable for a bridge loan.

3. A change to the IRS guidelines allowing the refund to be assigned to an agency or lender.

http://www.azcentral.com/arizonarepublic/business/articles/2009/05/20/20090520biz-downpayment0520.html

BTW, there was legislation in play that would have lowered FHA down payment requirements to zero, but the House and Senate could not agree on other aspects of so-called “FHA modernization,” including risk-based premium pricing. HUD was behind the idea — citing it as a reason they could eliminate seller-funded downpayment assistance.

By the time the FHA modernization bill got passed last year, lawmaker’s attitudes about zero down had changed and the minimum was instead INCREASED from 3 percent to 3.5 percent.

Anytime you need Congress to do something (like the tax credit), I think it’s safe to say you’d better not assume it’s going to happen until the legislation is on its way to the President’s desk.

In this case, HUD seems to have the authority to dictate what the policy is going to be, so you can bet they are trying to word something that fulfills the promises made by the Housing Secretary (although there is some speculation they might need legislation to do everything Donovan promised).