So, we pretty much know that the federal government is not going to allow the use of the $8000 tax credit at closing for the down payment and has yet to approve the use of the tax credit even for closing costs. With this in mind, I thought I would give a brief review of ways to obtain the funds needed to close on a new property. If you are having trouble coming up with the minimum down payment needed, your best bet is an FHA loan. FHA allows a minimum down payment of 3.5% and allows "an outright gift of the cash investment if the donor is the borrower's relative, the borrower's employer or labor union, a charitable organization, a governmental agency or public entity that has a program to provide homeownership assistance to low- and moderate-income families or first-time homebuyers, or a close friend with a clearly defined and documented interest in the borrower." All of these options are available for closing costs incurred outside of the down payment as well as the option of having the seller pay for a portion or all of the funds needed to close up to 6% of the sales price.
While these options may not work for everyone and I wish they would allow the credit to be used for down payment and closing costs, it is quite understandable in the our current economic climate why investors would want at least a small portion of the home's value to come out of the borrower's pocket. The zero down programs as well as other issues is what has created the current housing crisis. If you were going to lend someone $200,000 wouldn't you feel better about the loan if they give you at least $7000 (3.5%) upfront? I know I would feel a whole lot better about them paying me back.
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