FHA announced two weeks ago that they had found a way to allow the First Time Home Buyers Tax Credit of $8K to be used as a down payment on the purchase of home.  Everyone figured that the $8K would be made up in the form of a loan or second mortgage.  Even though this would have been nice for Buyers, it would have been an administrative nightmare for the Banks.

As it turns out, the new regulation does allow the $8K tax credit (exact process still unknown) to be used for closing costs but DOES NOT apply to the 3.5% down payment.  Buyers still need 3.5% of their *own money to purchase a home.  The tax credit can be added to the 3.5% to create a larger down payment, it just can’t be the only down payment.

* The downpayment can be gifted or borrowed from a relative.

6/8/09 Update:  HUD announced that they have no plan for ‘how’ a buyer would take advantage of the $8K for the purchase of a home.  They suggested the banks making the mortgage loan would have to ‘loan’ the buyer the $8K with a ‘promise to pay it back’ when he gets his tax return.  We all know that is never going to happen.

Why they even started this is beyond me.