FHA to Permit $8,000 Tax Credit as Downpayment?

HUD Secretary Shaun Donovan yesterday said FHA would permit lenders to allow first-time borrowers to use the $8,000 tax credit recently put into law as all or part of a downpayment on a home.

Donovan’s remarks at the National Association of Realtors’ legislative meeting in Washington represented the second major news announcement for HUD this week; earlier this week, Donovan announced that HUD had withdrawn its “required use” provision in final Real Estate Settlement Procedures Act rules.

“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 downpayment,” Donovan said. “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.

Donovan cited estimates by the National Association of Home Builders that the tax credit could stimulate 160,000 home sales across the nation, of which 101,000 could be first-time buyers using the tax credit. Another 59,000 existing homeowners could  buy another home because a first-time buyer purchased their home, he said.

Donovan said FHA will publish details of the plan shortly.  You can find the information posted at