A lot of chit-chat has been darting back and forth on the web about whether or not folks can actually use the new $8,000 first time homebuyer tax credit for a down payment. Well, the facts are in! If you qualify for the tax credit [click here to read up on qualifications for this credit] and put 3.5% down on the property with an FHA loan, you can use the tax credit towards your down payment.
In other words, you’ll need equity in the house to participate. This won’t be a zero-down plan, with one exception: If you obtain your FHA loan through one of the approximately 10 state housing agency “tax credit monetization” programs, you’ll be allowed to pay for your entire down payment with the help of a bridge loan provided by the agency. Those bridge loans generally are low-interest or no-interest, short-term second liens secured by the property, and convert into second mortgages if they are not paid off with proceeds of the $8,000 tax credit.
For FHA lender-supplied cash advances, you’ll be able to use the $8,000 credit – or whatever size credit you qualify to receive – for settlement fees, escrow charges, higher down payments or to “buy down” your interest rate to cut monthly payments.