Today Hud released rules allowing first-time homebuyers (FTHB) to use the $8000 federal tax credit as part of the down payment on their purchase of a home.  That’s good news, right?  Well, except for this part:

Accordingly, the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs. [emphasis mine]

In other words, this program is not going to replace the Nehemiah or Neighborhood Gold programs that allowed homebuyers to get into properties with nothing down.  Yes, you can use the credit to cover closing costs, but those costs were in most cases already being covered by the sellers.  Yes, you can use the credit to increase your downpayment (as long as you’re getting an FHA loan), but because it’s an FHA loan, that won’t improve your interest rate.  It will reduce the monthly payment by a few dollars ($400 a year, about), because the initial balance will be lower, but that’s about it.

So, what do we give this?  One cheer?  A cheer and a half?  Maybe, but not three cheers.  Not for this.

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