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You have to admit one thing, confusion always seems to abound when the federal government is involved! That’s why it is important to keep connected to professionals that cut through the confusion to help sort things out for you. That is why I am bringing you this update to the new FHA approved first time home buyer tax credit of $8000.

According to the newest Mortgagee Letter from HUD, the $8000 tax credit provided for First Time Home Buyers can be applied towards the purchase of a home using an FHA mortgage. However, this must be clarified a bit. FHA mortgage loans require a 3.5% investment on the buyer’s behalf, and this can not be provided by any third party entity, including the Federal Government! This means that as a buyer, you still need to have your own funds for this 3.5% investment in your purchase!

You can still use gift funds and any other acceptable option provided by HUD and the FHA. However, you can not use the tax credit for the minimum downpayment.

There is another item one should be worried about when using this credit… fraud. There are specific ways to use the credit and get the funds, and in some cases not knowing the difference can result in fraud. I will share more information on that in a future article very soon.

So to summarize, the newest Mortgagee Letter from HUD clarifies that a borrower can NOT use the $8,000 tax credit to satisfy the 3.5% minimal investment for an FHA mortgage loan. It CAN be used as further downpayment on a home, just not for the minimal.