New homebuyer will need down payment despite $8,000 tax credit

The Obama administration has put out the official word: Starting soon, first-time homebuyers nationwide will be able to turn their $8,000 federal tax credits into cash for use at closing if they use Federal Housing Administration mortgage financing. But in its final guidelines to lenders and homebuyers issued May 29, the Department of Housing and Urban Development clarified that purchasers obtaining FHA loans through private lenders will have to invest at least some of their own funds in the form of a minimum 3.5 percent down payment. In other words, you'll need equity in the house to participate. This won't be a zero-down plan, with one exception: If you obtain your FHA loan through one of the state housing agency "tax credit monetization" programs, you'll be allowed to pay for your entire down payment with the help of a bridge loan provided by the agency. Those bridge loans generally are low-interest or no-interest short-term second liens secured by the property, and convert into second mortgages if they are not paid off with the proceeds of the tax credit.

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