** After posting this, I received an e-mail bulletin saying that “HUD did look favorably toward this change but now they have pulled back & are revisiting the setup.” So please be advised that NO program has been approved as of yet, but HUD is considering it. **
Right now, you must first purchase the home, and then file for the $8,000 tax credit on your taxes, but the Federal Housing Administration is trying to find a way that people can “monetize” the credit.
Although the FHA has worked to get rid of down payment assistance programs and made it more difficult for buyers with little or no cash to pay up front, they are now taking a step back it seems with this move. Actually, this is a short term loan given by approved lenders, non-profits, and state and local governments that could be used as a down payment to be repaid once the borrower receives the tax credit. Once they received their tax credit, they would pay off the short-term loan and put equity into their home.
FHA requires that buyers pay at least 3.5% down payment on a home, but with this loan, a buyer can get into a home with no down payment money coming from their own pocket. Some people worry that “no down payment” programs helped create the foreclosure mess in the first place, because people had no investment in their homes, and therefore felt less worried about defaulting on their loans.
“Although it remains to be seen how the program is actually implemented, the plan resembles former seller-funded down payment assistance programs,” writes housing analyst Ivy Zelman in a research note Wednesday. “We remain concerned that the lenient underwriting standards, low down-payment requirements and now the ability of FHA borrowers to purchase a home without putting any of their own equity into the purchase is creating a tremendous risk for the program and taxpayers in the future.”