HUD Bars Use of Tax Credit as Down Payment

A bid to allow the return of risky “no money down” mortgage loans was quashed this week by the U.S. Department of Housing and Urban Development (HUD).  HUD made the move in new guidelines which bar first time home buyers from using any of the $8000 first time home buyer tax credit towards the down payment on their FHA-insured home purchase loans.

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The new guidelines quash recent hopes that first time buyers would be allowed to “monetize” their tax credit and apply the funds towards their down payments. 

This means that it will remains virtually impossible find purchase money loan financing permitting no or very low down payments. FHA-insured loans currently allow the lowest down payments (3.5% of the home purchase price) of all generally available purchase money loans programs.

HUD’s new guidelines for FHA-backed loans do allow use of the first time buyer’s tax credit towards payment of loan closing costs.  This new rule reduces the amount of money first time buyers will need to bring to the closing under FHA loan programs.

Click here to learn about the new HUD guidelines on use of the first time home buyer tax credit towards FHA loan closing costs.

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