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 A week later, that announcement was retracted and down payment assistance was not available with the $8000 tax credit.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.

Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, announced today that the Federal Housing Administration is going to allow home buyers to use the $8,000 tax credit as a down payment through its approved lenders. Previously, the credit would come to first time home buyers after they filed their tax returns…next year in 2010.

“We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan says.

According to Donovan, FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

This will help many home buyers who were still unable to take advantage of this year’s $8000 tax credit. Down payment assistance is what most home buyers need the most, so this will be a welcomed change to the credit for many.