HUD will not allow $8,000 tax credit to be used as down payment money
WASHINGTON, DC (May, 2009) -- The US Department of Housing and Urban Development ("HUD") clarified that first time home buyers cannot use the $8,000 tax credit provided for in the American Recovery and Reinvestment Act ("ARRA") as down payment money. Rather, buyers can use these funds to pay closing costs, discount points and to pay the up front mortgage insurance premium required on an FHA loan to reduce their monthly mortgage payment.
The announcement has no impact on HUD's $100 down payment program, which will continue to be offered until further notice from HUD. The $100 down program remains the most versatile, broad-based way for home buyers to purchase a home with an ultra-low down payment.
The announcement disappointed members of the real estate industry, who point out that the 3.5% down payment required for an FHA loan is the biggest obstacle for first-time home buyers. But the ARRA requires buyers to have "skin in the game", so the tax credit can only be used in addition to borrowers' own 3.5% down payment.
FHA guidelines say that the 3.5% down payment can come in the form of a gift from qualified donor candidates. For example, parents or spouses can give a borrower down payment money; real estate agents and home sellers cannot.
For more information on HUD's $100 down payment program, click here.