HUD Announcement NOT What is Needed!

HUD: Tax Credit Can Be Used on Closing Costs, NOT As Part of Minimum 3.5% Down Payment! 

It's not at all what the consumer or the real estate industry or homeowners nationwide wanted or needed and it's yet another example of big government not understanding what happens at "street level".  HUD did NOT approve a plan to allow buyers to use the $8,000 first-time home buyer tax credit toward their down payment.  This is a significant back pedal from what everyone thought would be a HUGE help to the buyers and to the real estate market overall.

Unfortunately HUD announced FHA-approved lenders received the go-ahead to develop bridge-loan products that enable first-time buyers to use the benefits of the federal tax credit upfront, according to eagerly awaited guidance from the U.S. Department of Housing and Urban Development on so-called home buyer tax credit loans that was released today.

Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent.

The loans can't be used to cover the minimum 3.5 percent down payment, senior HUD officials told reporters on a conference call Friday morning.

Thus, buyers applying for FHA-backed financing with an FHA-approved lender that offers a bridge-loan program can get a bridge loan to bring down the upfront costs of buying a home significantly but would still have to come up with the minimum 3.5 percent down payment.

In reality, HUD allows the seller of a property to pay "all" of the buyer's closing costs up to 6% (which generally covers all of the costs) and that is how business is generally done in the Central Florida market.  First time buyers come up with the down payment and ask the seller to assist by paying their costs.  I closed three or four transactions in the last 30 days where the seller paid the buyer's full closing costs and pre-paids (escrows) so the buyer's total investment was the 3.5% down payment.  So the big "news" is that not much has changed and this won't help most buyers who are strapped for cash.  The vast majority of sales using FHA financing already do not have the buyer paying closing costs so this new rule in most cases in not a factor and did nothing to stimulate sales and in reality almost nothing to assist a buyer who is short on cash but has acceptable credit, income and job stability to otherwise qualify. 

So the bottom line is that the big announcement by HUD is actually a big disappointment.  HUD, please revisit this issue and give the consumers what they want and need.  What better use could there possibly be for the $8,000 tax credit than to have the buyer plunk it down as a down payment on their first home?  You're going to give them the money anyway so why not give it to them to fund the purchase?  I understand HUD wants the buyer to have an investment (some "skin in the game") but they're going to give them the $8,000 with NO restrictions on how it is spent or wasted...why not use it as their down payment?  That sounds like better use of the money than buying furniture or a couple of new flat panel TV's or taking a vacation!