Welcome to another instalment on the question on every first time buyers lips these days…..how can I use the available $8000 tax credit as a downpayment towards my first home?
I have been in touch with several key people this week at the various state agencies charged with trying to make this happen. At this stage, I would caution against getting anyone’s hopes up that they will be able to use this credit as a downpayment. Consider the following. The state has to get into the lending business, and to do so they need a pool of funds. Considering the budget crunch the state has seen, this is not an easy task. Much of the money that is earmarked for housing cannot be channelled into this pool, so they are trying to find alternate sources. Then there are the logistics of administering the program, figuring out what interest to charge, accounting for how they will get this back since there is no automatic mechanism in place for the credit to go towards paying off the state loan, how to account for defaults and so on. Consider also that this program in its current form expires on November 30 this year, so that doesn’t leave a lot of time for our legislators to put things into action.
I have talked to a number of people recently who seem to be holding on for this to happen and I counsel them against it. If they don’t buy before November 30 they lose the opportunity to get the free federal money, unless the government decides to extend it and that is anyone’s guess. I suggest we look at creative ways to get into a home NOW and then worry about getting the money back either next year or by sending in an amended return for 2008.
So what is out there for first time buyers who can’t come up with a down payment of 3.5% (minimum FHA) on their own?
With an FHA, the down payment can be all gift funds from a family member. It can be borrowed against a 401k. It could be borrowed against a secured asset, like a vehicle owned free and clear. It could be any combination of the above.
There is an FHA program that allows $100 downpayment on HUD owned properties. ONLY HUD foreclosed properties will work and these are in limited supply.
There are VA loans for Veterans, where an eligible buyer can still get into a home for zero out of pocket. There are no income restrictions or area limitations on the VA program.
There is USDA, which again can enable clients to get into a home for nothing out of pocket. The only real requirements for this program are income limitations based on the family size per county, and the property has to be in designated areas. Good news is that each of the counties, even the tri-counties has areas that qualify, AND, the USDA just expanded the areas to include Wilsonville, Cornelius, Forest Grove and Woodburn.