The FHA Gets On Board with the $8,000 Tax Credit
Great news for home buyers! U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan announced yesterday, May 29th, that the Federal Housing Administration (FHA) will allow home buyers to apply the Obama Administration’s new $8,000 first-time home buyer tax credit on FHA mortgage loans. Previously the tax credit only applied to conventional mortgages. The only catch is that the tax credit cannot be used towards the minimum 3.5% down payment. But, this is still terrific and a great help for people who need to use a FHA insured mortgage loan.
Secretary Donavan said that the FHA’s objective in doing this was to help stabilize the housing market by stimulating more home sales across the US and it certainly should do so. With the ability to apply the tax credit to purchase costs, buying a home now becomes affordable for thousands of people and affordable enough to get thousands to jump off the fence and into a house.
FHA loans are extremely popular with first time home buyers because qualifying for a FHA mortgage is a lot easier than qualifying for a conventional loan. The ratios are easier and the down payment can be as little as 3.5% although I must tell you that I do not approve of buying a home with such a low down payment. What I tell my home buyers is to wait until you’ve saved up at least a 10% down payment.
While interest rates went up this week, they also came down on Friday so we’re still in the 5-5.5% range for what most people really qualify for in a mortgage. This has been where it’s at for the past several months throughout the spring.
The reason the first time home buyer market is critical to the housing market is because this is where the housing domino chain begins – when a home buyer buys a house, he buys it from someone who often moves on to a bigger house and so on and so on. The entire chain of transactions begins with the first house that is sold and that’s your first time home buyer.
If you look at the real estate market the picture you see is a pyramid with the least expensive homes on the large bottom (mostly first time home buyers) and the most expensive at the very top. Without those large bottom rows of buyers, the real estate market will collapse. So the FHA, by accepting the $8,000 tax credit on its loans, has helped tremendously to maintain the strength and stability of real estate.
