But can you really use it? Not so fast….

Federal Housing Administration (FHA) announced today that the first time home buyer credit of $8000 can be used as down payment in San Jose & rest of the Bay Area. If you are a first time buyer with limited down payment and you are the type who doesn’t read fine prints, it certainly is a great news. But I have my reservations – some serious ones. I see some very basic issues with the announcement which would either delay the implementation or may have limited benefits for a first time buyer or both.

Per the announcement, minimum down payment of 3.5% that needs to come from buyer’s funds (or gift) currently, will remain. Meaning you can’t use the $8000 tax credit against 3.5% down payment requirement. The tax credit can only be used for additional down payment and/or paying for closing costs. Hence, it doesn’t help you if you were struggling with bringing that 3.5% down payment to the table.

The announcement says that the government agencies may offer these credit advances as 2nd mortgages. There is no clarity on who are these government agencies. City, county, state government bodies!! So from the implementation perspective, it could take a long time first for these agencies to start offering this credit advance and then the mortgage banks/lenders to incorporate that into their loan program.

Note that the tax credit ends on November 30th. A rough calculation would tell you that if you want to close the transaction by that date, you would need to sign purchase contract latest by November 1st. Thats less than 5 months away. Time is of essence here and so this program may end up becoming a case of too little too late.

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