$8,000 Home Buyer Tax Credit as Down Payment

We have been receiving a lot of questions from first-time buyers about the $8,000 home buyer tax credit program. So I thought it would be helpful to address them here on the blog.

Without a doubt, the most common question we receive has to do with using the $8,000 tax credit as a down payment when buying a home. Here's the latest on this subject.

Please note: This program has evolved in the past, and this may continue going forward. The answers provided below are based on information available as of August 2009. I recommend checking the IRS website for the most recent information on the $8,000 home buyer tax credit (since it is an IRS program).

Latest Information on the Tax Credit

With that disclaimer out of the way, here is the most common question we receive about the $8,000 credit.

Question: I will be buying a home this year. Can I claim the $8,000 credit now and put it toward the down payment on my house?

This has been the subject of much confusion. The answer is -- it depends. The IRS website currently says no. They explain that the home must be purchased before you can claim the tax credit, so it's not possible to put it toward the down payment.

With that said, certain buyers may be able to get the credit up front and put it toward their down payment, but only if they use the FHA home loan program. Additionally, the buyers must pay 3.5% of the down payment out of pocket, and may use the tax credit for any amount that exceeds 3.5% of the loan. So you still have to bring something to the table.

You can learn more here:

Let's clarify what we've covered so far:

• Home buyers who get approved for FHA-insured mortgage loans may be able to put the $8,000 tax credit toward their down payment. But the buyers must put 3.5% down. The credit only covers amounts in excess of 3.5%.
• Home buyers who use traditional (non-FHA) loans will not have this option. But I have heard of certain lenders making bridge loans in the amount of the tax credit, to be paid back later when the buyer receives the credit. I don't know how common this is.

For what it's worth, I personally feel the $8,000 home buyer tax credit is a bad idea. From where I'm sitting, it looks a lot like the government-stimulus programs that drove us into a housing crisis to begin with. But our readers want to know about it, so I have a duty to share what I know.

Related articles:

• FHA Home Loan Requirements
• How to Qualify for an FHA Mortgage in 2009