If it sounds too good to be true...

There are lots of rumors floating around about the $8000 tax credit and whether or not it can be used as a down payment on a home.

Earlier this month, there was a lot of horn tooting excitement because it was announced that it would be possible to use the anticipated tax credit refund as collateral for a short term loan which could then be used as a down payment for a FHA mortgage. This was thrilling news for many first time home buyers out there, and the information was coming from reputable sources - the US government, National Association of Realtors.

A day later, with much less fanfare, the news changed. It was not said that the tax credit could not used as a down payment in this fashion. Oops. The details are being worked on, and while the change is anticipated, nothing has been finalized yet.

FHA requires that a buyer has a down payment of 3.5%. This money can be from the buyer's savings, a gift from a relative, from an approved non-profit group or government agency (down payment assistance program), from a secure loan (ie against an IRA or real property) or from employee contribution programs through the workplace. FHA does not allow for the down payment to come from unsecured loans like those that would be taken out against the anticipated tax refund. The excitement stemmed from early words that the language in the FHA approved sourced for the down payment would be changed to allow for this, but it did not happen.

The tax credit is real, and it is a huge bonus for anyone who has never owned a home or who has not owned one within the last three years and who closes on a home prior to December 1, 2009. There are rules, regulations and limitation on it though. Any buyer who is anticipating receiving this credit should talk not only with a knowledgable realtor but also with a repuatable mortgage banker and/or tax accountant about this.

We all have limitation on our knowledge. I do not pretend to know it all, which is why I hesitate to give advice on matters like the tax credit to my buyers.

Please, be wary of those in our profession who are too free with financial advice. As the old saying goes, if it sounds too good to be true, it probably is.