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You may have seen several posts here with varying degrees of information regarding the $8000 tax credit as it relates to down payment assistance. At first, it was not available. Then there was an announcement that it would be added that it could be used for down payment assistance. A week later, that announcement was retracted and down payment assistance was not available with the $8000 tax credit. So, now, the teeter topper flips again…

The latest, I’m told, HUD announced down payment assistance is now available again for FHA-approved vendors through a bridge loan for the $8000 tax credit to monetize it up front to assist with closing costs, pay down interest points or to put down additional down payment outside of the 3.5%. So buyers will still need to come up with the 3.5% required for an FHA loan on their own, if they take advantage of the loan.

What I do not have much information on at this point is the “bridge loans”. My instinct is that if you go this route you should be careful because it’s a “loan”. Make sure you are well acquainted with how this works. You’ll need to talk to your lender about the terms and implications to ensure it’s actually more beneficial for you to take the loan to monetize the tax credit before it would normally be available (after you file your taxes next year.)

Last week, we heard the announcement from HUD Secretary, Shaun Donovan, that the $8000 tax credit would now be available for down payment assistance at closing. Lenders would provide it through short-term bridge loans on federally insured mortgages (FHA).

It was received favorably from real estate agents, lenders and builders because it would open more doors for first-time buyers. Not everyone responded with enthusiasm. It was said that it too closely resembled a now illegal practice of “seller-funded down payment assistance” where the seller provided a “gift” to the buyer to help with closing. Because it was provided as a “loan”, it was more debt instead of the savings that is required for a down payment.

The loans would have probably been at a high interest rate as well. It was shot down by the IRS also as it could have created income-tax issues.

So it’s back to the original plan. The $8000 tax credit for new home buyers is available for those homes bought between 1/1/09 and 12/1/09. However, it is received after the buyer files their taxes next year.