New programs help buyers with down payments

With bargain prices, low interest rates and an $8,000 federal tax credit for first-time homebuyers, it seems like the perfect time to buy a first home.

But apparently, many potential first-time homebuyers aren’t getting the idea ? and federal and state officials are looking to sweeten incentives.

The word this week from Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, is that the Federal Housing Administration will allow its lenders to let first-time homebuyers use the recently enacted $8,000 tax credit as a down payment.

Details are expected in the coming weeks.

Going back to last year, the first enticement was a $7,500 tax credit that had to be repaid. That didn’t inspire too many buyers.

Then earlier this year, the $8,000 federal tax credit for first-time buyers was rolled out, a huge help for people who want to take advantage of local home prices at pre-2000 levels.

But the down-payment help is even better news. For buyers, it makes it easier to finance the home. For the housing market, it finally gets the ball rolling.

This represents an about-face from last fall’s decision under President George W. Bush to cut off down-payment assistance because these loans tended to default more than ones where the buyer put money into the deal.

More buyers are using FHA loans as lending has tightened for conventional loans, so the impact could be wide. FHA requires a down payment of 3.5 percent.

“Unless you’ve got 20 percent down and over a 740 credit score, government loans are the name of the game right now,” said Pava Leyrer, president of Heritage National Mortgage in Grandville, Mich.

FHA-insured loans make up more than 17 percent, according to its most recent market share report.

The program would make an even bigger splash in metro Detroit, said Dan Elsea, president of brokerage services for Real Estate One in Southfield, Mich., as FHA loans are close to the majority of mortgages written in Michigan now.

It could take up to two months for the down-payment assistance plan to be available. It would work by giving buyers short-term bridge loans, effectively fronting the tax credit at the closing table, Donovan said.

(c) 2009, Detroit Free Press. Source: McClatchy-Tribune Information Services.