First Time Homebuyer Credit as a Down Payment..Uncle Sam to RE's rescue

Here's the latest assist from the Federal Government for the real estate market.:



US Department of Housing and Urban Development secretary Shaun Donovan made the announcement yesterday. Donovan’s announcement came at a National Association of Realtors legislative summit, although HUD’s details on the initiative aren’t scheduled for official release until next week. The initiative will allow FHA-approved lenders to monetize the tax credit through short-term bridge loans, letting borrowers access the funds at the closing table.



OK, this sounds really awesome. The web is filled with the expected amount of hyporama on this development. There are no official releases until next week from HUD. What will likely follow is another 2 to 4 week period for all the lenders to figure out how to implement the new policy. I will say it again, there are no official releases until next week.



I have, and anyone in RE, should have some questions and concerns on this new policy. I am not suggesting I am against it, after all I work for a FHA approved lender, but let's take a look at some potential issues that come to mind.




Will a lien be placed on the property at close of escrow? Will it be an IRS lien ( it is a TAX credit ) or will it be a FHA lien similar to ones we see from community non profits that provide buyers credits?



How will the bridge loan be repaid? If all goes well the borrower will have the full credit coming back to them when they do their taxes for 2009. But what happens if the borrower ends up owing taxes? Will the IRS place a lien on the borrower and/or property? Lenders don't like IRS liens, either do title companies.



Is the bridge loan payable in full in the next tax cycle? Or can it be paid back over time like the original $7500 tax credit?



Is it a lien that stays on the property until it is sold?



For the government conspiracy theorists; If the government has a lien on my house can they tell me what I can or can't do to the home?



Agents, better get your addenda forms out 'cause you will be using them. Is the use of the credit determined by the date of the contract for purchase or the potential funding date? I'll bet there will be a shipload of contract extensions done in the next few days.



Questions, lot's of them are not listed here.



So the hype is upon us. But what the hell, who cares about the ramifications, let's just go out and mine our databases for first time home buyers ( like we weren't already! ). I took 15 phone calls on this in the first hour and 15 minutes in the office this morning. I say let's chill out for a bit and get our bearings.



I am contacting my first timers with one piece of advice. Don't do anything, yet. Just like all the other changes we have seen mandated by new government programs in the last few months this not a policy that will be implemented overnight. What I am telling them is the the same advice I give to all buyers, first timers or no.

1) Get your financials together ( 2-2-2 Rule, 2 months pay stubs, 2 months bank statements, 2 years tax returns )

2) Make an appointment with your favorite lender.

3) have them pre approve you in either FNMA's DU or FHLMC's LP.

4) Wait for everything to come out in the wash.



There will be no prize for being the first one to do this. What I will say is don't wait until October to do this. Unless the rules change this credit goes away December 1. If you don't close by November 30 you will have missed the boat.