First-time Home Owner Tax Credit Can Be Used For Down Payment

The Obama Administration recently announced that first-time homebuyers will be able to use the $8,000 tax credit for initial costs, such as closing costs and for a down payment when the borrower finances their new home through the Federal Housing Administration (FHA).

The Department of Housing and Urban Development stated on May 29 that buyers obtaining an FHA loan through private lenders would still need to invest their own funds toward the minimum 3.5 percent down payment.

For borrowers who have taken out a loan through one of about nine state housing agencies offering tax credit loan programs, you will be eligible for a bridge loan which can be used towards a down payment and/or closing costs. States that currently offer tax-credit monetization programs include Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, and Tennessee.

Tax credit monetization programs offer the borrower a low-interest rate loan to be repaid using the proceeds from the $8,000 tax credit. If proceeds from the tax credit are not used to immediately repay the loan, the loan is converted into a long-term second mortgage backed by the property.

It is believed that many more people will be able to take advantage of the first-time homebuyer tax credit after the Obama administration’s recent announcement.