Can the First-Time Home Buyer Credit be Used to Fund My Down Payment?

Dear Trudy,

First, I have to tell you that California ran out of money for that program. This quote from the state makes it clear that it will accept no more applications for the tax credit because the $100 million allocated to it has all been applied for.

The good news is that the federal program still applies if you are a first-time homebuyer as defined by HUD. And, although HUD Secretary Shaun Donovan asserted that the $8,000 credit can be "monetized" or borrowed against to finance the down payment or closing costs, he made it clear in a speech in June that while the $8,000 credit could be applied to the down payment, buyers still had to come up with at least 3.5% of the purchase price using their own resources. It would be best for you to find a good mortgage rate quote, get your best FHA loan, pay your 3.5%, and collect your tax refund and put it in a safe place.

Finally, look into this program: certain California properties owned by the California Housing Finance Agency are available at zero down and you are still able to claim your $8,000 tax credit too. You will be required to go through a homebuyer education program, but that's a good thing. It will increase your chance of successful home ownership. Good luck and thanks for writing.

Liz