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HUD Wants to Let First Time Home Buyers Use $8,000 Credit for Downpayment

This article was written by in Real Estate and Home. 6 comments.

In February, Congress passed the American Recovery and Reinvestment Bill of 2009, otherwise known as this year’s stimulus bill. One small part of this bill allows first time home buyers (anyone who hasn’t owned a home in the past three years) to qualify for a $8,000 tax credit.

For individuals or families hoping for some help to move into a house within their reach of affordability, this is an amazing offer. Not only does it help home buyers, it will in theory help stimulate the real estate industry by keeping housing prices from falling further and allowing more people to afford to buy homes.

Even better, this year’s credit does not need to be paid back to the government unlike last year’s $7,500 credit for first time home buyers. The rules for claiming the home buyer credit are not as helpful as they could be, however. If you qualify for the credit, you need to buy the house first, using funds you have or a loan, and then later apply for the credit either in an amended 2008 tax return or your 2009 tax return.

The U.S. Department of Housing and Urban Development wants this benefit to assist home buyers differently. HUD is pushing for the rules to be changed to allow lenders to borrow against the tax credit. If the buyer qualifies, he or she can receive their tax credit up front to be used for completing the down payment or paying closing costs.

If HUD models the first time home buyer’s loan after similar programs offered by a select number of states, the loan would be interest-free as long as it is paid back within a reasonable amount of time. I imagine the grace period would be determined when the rules are set if HUD is successful in getting the rules changed.

Published or updated May 20, 2009.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 6 comments… read them below or add one }

avatar 1 Anonymous

This proposal from HUD just proves that our government has an endless supply of idiotic ideas. This is precisely the thinking that inflated the real estate bubble to begin with: I want it and I want it now and no silly thing such as SAVING for a down payment is going to get in my way. There must be an entire committee of government bureaucrats who are tasked with doing nothing except thinking up new ways to throw taxpayer money down the rat hole. This week, the committee is working at HUD.

And what happens when we learn that thousands of home buyers are “borrowing” a tax credit that they aren’t actually entitled to? More fraud opportunities, with more government employees needed to investigate fraud. It never ends does it?

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avatar 2 Anonymous

I suggested this idea on the GetRichSlowly forums about 3 months ago. Everyone balked at me like Mr. ToughLoveMoney does above. I think this is a great idea that helps make sure the money is used on the house and not on a vacation. Some cynics argue that prices will just inflate $8,000 to compensate. I am sure that could happen in some cases, but I do not think it is ubiquitous.

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avatar 3 Anonymous

I think it could be a sound idea. For it to truly function well, I would think that HUD would have to place a priority lien on the individual’s IRS dollars so that the money gets paid directly instead of counting on personal responsibility.

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avatar 4 Anonymous

Maybe I am missing something. The maximum the SSA. will allow clients on SSI to save is $2000.- food. clothing shelter is all SSI is for; and not taxes.

$8000. plus $2000. would not buy an outhouse anywhere in CA that I know of.!

Retired, fired, laid off could buy, but does not have continuing income to pay taxes on what he or she buy.

Perhaps I am too tired at the end of the day to figure this out; but it sure seems questionable!

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avatar 5 Anonymous

Using the First Time Homebuyers’ Tax Credit as down payment is a pretty good idea in my book. If the FHA/HUD really pushes this through, it would do so much good to the ailing real estate industry.

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avatar 6 Anonymous

The first tax credit for home buyers and it had to be repaid over a maximum period of 15 years. The second change increased the first time home credit to $ 8,000 and potential home buyers had to December 1, 2009 to purchase a home and take advantage of the home credit. However, recently HUD allows the first time home credit to be used as part of the down payment and/or closing cost. This doesn’t appear to be better than the credit that one gets and not have to pay it back. HUD is calling the first time home buyers credit funds extended to the buyer as bridge loan that have to be repaid. If I’m not interpreting this new HUD provision correctly, I would welcome some feed back. Please suggest me about first time buying…

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