Shaun Donovan, again: $8000 credit at closing.
HUD Secretary, Shuan Donovan is at it again. On Friday, he told the National Association of Home Builders that FHA will be allowing borrowers to use their $8000 tax credit at closing toward down payment and closing costs.
Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate.
This time, it looks like it is for real.
So let’s review the numbers:
Let’s say you have $10,500 (that’s a 3.5%) saved for a down payment. Plus, you have enough cash on hand to pay for your out-of-closing expenses (like inspections and attorney’s fees, moving expenses…) That puts you right on the edge of what this program will allow for purchase a $310,500 house. This change would allow you to use that $8000 credit toward increasing your down payment or towards the FHA fees for the loan, closing costs and escrows.
With roughly $10,000 in dedicated savings, and a few thousand in cash for expenses, you can buy a roughly $300,000 home. You can, but should you?
Before jumping in, evaluate the following:
1. Are there big-ticket repairs coming up on this house?
2. How long did it take you to save the $10,500? How long will it take now to replenish your savings, with your new mortgage payment?
3. Do you still have reserve for sudden repairs, job loss or illness?
FHA is the loan program for people with low savings, but good income and credit. The less cash you have on hand after closing, the riskier it is for you. Do you really want to dip into that $8000?
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Another part of the Bush-Obama-Summers Administration's policy of using recklessness as the cure for recklessness. I hope Timmeh Geithner was successful in his tearful pleadings with the Chinese this week to keep lending us bagfuls of dollars, despite their rising demands to be paid back in IMF SDRs instead of our own pesos, um, dollars. Otherwise where will we get the money to sell buyers houses they can't afford?
No you shouldn't buy something that expensive with the $8K down. Listen it takes a lot to be a good homeowner and money is one of them. If you save it then you have it for regular expenses, unexpected circumstances, and repairs that you may want to do.
I think the 8K should be open to more than just new homeowners quite frankly. I am ready and willing to move out of my first home, a townhouse yet nothing to help me move on and free up this more affordable choice for a first time home buyer. The things that the townhouse taught me about maintenance and home repair were fabulous because it was limited in scope. I was not faced with both interior and exterior repairs and upkeep. Now I am ready to move on and tackle more challenges and work with the exterior, Most people don't go from getting their license to a luxury car, so why do that in your home. Start with a nice reliable home like a condo or townhouse and then move up as your savings grow and you are able to afford more.
#2
Almost everyone is in the same situation as you, who wouldn't love 8000 dollars of borrowed foreign money in their bank accounts. Personally, i would like to see the 8k "credit" go away and prices to come down to levels where the 8k ISN'T NEEDED. This government welfare situation has to stop. And yes, I will be a first time home buyer when all of this garbage has passed.
Do we think the tax credit will be extended into 2010 purchases?
Cash-strapped first home buyers would do much better if they postponed their purchases another year or two. The advantages of this approach are twofold: 1) they can buy when prices are lower, and 2) they can save up a decent down payment.
From a financial perspective, the $8,000 tax credit is a drop in the bucket compared with the further price declines that are on the way. For example, let's consider the $300,000 home mentioned above. In the best case scenario, house prices fall another 10% and bottom. If this happens, the buyer has traded an $8,000 credit for a $30,000 loss. The net result is they are $22,000 in red. Now let's look at a more likely scenario... Prices decline another 30% before bottoming. In this case, the buyer has traded an $8,000 credit for a $90,000 loss... Net, they are down $82,000.
I don't know about you, but if I were somebody who had to scrimp and save to come up with a $10,000 down payment then I would find the prospect of losing $80,000 or more absolutely terrifying.
more subsidy for an already grossly over-subsidized industry. This 8k will do far more harm than good in the long run. Every policy is designed to put a floor under home prices, but subsidies have historically failed in free-markets (this one will also).
Who's kidding Who! Only an inexperienced fool would embark on this
adventure in an economy like this. Ooops , I forgot that this program
targets inexperienced fools. I may sound like Rodney Dangerfield,
but here it is... Kids , stay home with your parents. It's murder out there.
Jennifer,
I don't think we will see the credit extended into 2010. I don't think it will prove to be effective in stimulating home buying.
i don't understand about these stimulus packages targeted to only first-time homebuyers -- these are the people who understand the least about the costs associated with owning a home. weren't those who participated in such programs the first wave of foreclosures? what is the difference between this tax credit and first-time buyer programs, and the subprime lending cascade? if you can afford it, you can afford it -- if you can't, you can't.
no one ever truly takes living expenses into account when they buy their first house, as well as the increased real estate property tax increase that comes from the purchase of the home (and if you think it won't go up, think again -- purchase price is not the only thing that counts in tax assessments). that p&i does not include insurance, taxes, heat, hot water, electricity, etc. if you have been renting and getting that as part of your rent, be careful about your budget, and be realistic.
personally, i think the government should just let this play out, and focus on dealing with employment re-training and the job sector. the rest will take care of itself.
This sounds great in theory but where does the 8K come from that allows it to be applied at close? Where do we get it? HUD has allowed it's use but does not indicate where to obtain the funds. It is my understanding that banks can lend the money short term. What bank is willing to do that? Seems like a risky loan for a bank make.
Remember S, who was waiting to close on his FHA 203K loan? His closing costs were $17,000 on a $350,000 loan.
That $8000 credit wouldn't go very far with those kinds of fees.
Here's a link about the bridge loan for using the $8000 at closing.
This blogger might want to review your comment before posting it.
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