FHA credit will give first-time home buyers $8,000 toward down payment

Posted by Cami Reister | The Grand Rapids Press May 16, 2009 05:00AM

Matt and Liz Hedges want to be first-time home buyers, and they know the market is ripe.

The couple live on Matt's income while Liz stays home to care for their 9-month-old son. They still are building an emergency fund, so they were looking at a zero-down loan program.

But their plan changed with news this week the Federal Housing Authority soon will allow the $8,000 first-time buyer tax credit to be used as a down payment.

"This really broadens our options and areas where we can look," said Liz, 24. "If we had to wait, we'll wait. But we really want to take advantage of all the incentives right now."

They are among many potential first-time buyers interested in the announcement this week by Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development , that the FHA soon will allow the tax credit to be used as a down payment via a bridge loan from a lender.

Donovan delivered the news Tuesday in a speech at the National Association of Realtors Real Estate Summit in Washington, D.C.

"FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to 'monetize' the tax credit through short-term bridge loans," Donovan said in prepared remarks.

Details have yet to be released, but some real estate agents hope it will be the tipping point to reverse a long-suffering market.

Rick Seese, associate broker and manager of Greenridge Realty's Lowell office, said it will make a huge difference.

"America is probably more cash strapped than they have been at any time in the last 10 to 20 years," Seese said. "This will allow a buyer to put $8,000 down. If they qualify for the whole $8,000, that can represent a 5 percent down payment."

Even buyers who have a down payment saved up are interested in it, said Five Star Real Estate agent Mary Kent.

"Maybe it's going to open up some doors that might not have been opened prior," Kent said.

Cathy Hoppough said the down payment option is good, but even more needs to be done. The broker of Coldwell Banker Hoppough & Associates in Ionia lists foreclosed properties for HUD and several lenders.

"We need about a $15,000 credit for every buyer out there, not just first-time buyers, to stimulate the housing market," Hoppough said.

"There are a lot of other people out there who would be stimulated to buy something if it applied to them."

Waiting for details

Lenders are waiting for the FHA to release details of the down payment plan.

Based on the limited information so far, Rusty Darter of Byron Bank said it has the potential to help several buyers, but it is not for everyone.

"It concerns me a little bit when someone borrows money to be able to come up with a down payment to be able to borrow more money to buy a house," he said.

"What if there are things in that person's life that offset that tax credit and ... their refund becomes less than the down payment?"

Until the details are released, it's hard to know, he said.

"On the face, it does look like a good opportunity."

E-mail Cami Reister: creister@grpress.com