Use your $8000 tax credit for your down payment!

I had a conversation with my friend Bob Linz, a real estate investor, on the ferry Friday night. He predicted the rise of foreclosures three years ago. He thinks the real estate market won't hit bottom for another three years.

Nobody is right 100% of the time, any more than any hitter can bat 1.000 for very long. I think Bob's pessimistic. The following story about how first-time homebuyers can now use their $8000 credit bodes well. As the story points out, the credit won't be enough to "reinflate the market," but it will help to put the needle in the valve, at least.

At Tuesday’s National Association of Realtors Real Estate Summit held in Washington, D.C. [May 12], Housing and Urban Development Secretary Shaun Donovan tipped his hand at some changes to the original $8,000 tax credit proposal for first-time home buyers that the Obama Administration announced in February.

Here’s the buzz: The feds may allow the $8000 tax credit to be used now — perhaps as a down payment on a house — rather than waiting months for a refund on a tax return. This is considered a huge plus since most first-time home buyers have difficulty coming up with a down payment and this could help motivate buyers.

Here’s a key excerpt from Donovan on the $8000 tax proposal:

We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a down payment. So 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. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit. FHA will be publishing the details shortly.

Loan officer Justin McHood wrote about the possible tax credit changes on Mortgages Unzipped, warning that this is not in place yet, but details will emerge soon and the Seattle PI’s Aubrey Cohen reported that buyers would repay the loan after getting their tax refunds. Builder Online quotes Rob Dietz, director of tax issues at the National Association of Home Builders (NAHB) is less optimistic, saying:

“There’s no doubt that the purpose of the tax credit is to stimulate housing demand. We estimate new and existing home sales will increase by 160,000. But it’s not a tax credit that is in anyway large enough to reinflate the market—it’s just a useful and limited tool to smooth out the market,” he said. “As for causing sales to return to 2005 levels or push prices up, this tax credit is not capable of doing that.”

Many more details to be worked out. Stay tuned.

Thanks to Diane Tuman at Zillow Blog