Subprime Lending comes back

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Do you think using tax credit to subsidize the down payment and closing costs for first time homebuyers is a good initiative? Despite criticisms, the federal government and the states are employing schemes to make this possible. In fact, they are finding creative ways to advance this tax credit to potential home buyers.

State governments are “monetizing” the tax credits of first time home buyers so that they can purchase homes with small or no money down.

To boost home buying, a number of states are now finding creative ways of advancing tax credit to home buyers (even the marginally qualified ones) on the day that they get the new keys, instead of waiting for the refund check the following year. This will allow buyers to afford things like mortgage points, closing costs, or even down payments.

However, critics argue that rebates should not be given to the buyer until the 2009 tax returns have been filed, even if these rebates are credits and not deductions.

As part of the economic stimulus package recently passed by the federal government, first-time homebuyers may refund up to $8,000 if ever they meet the eligibility requirements. This program has been frequently cited in the past as one of the reasons why there was an imminent bottom in the housing market.

States are employing different schemes where they’re offering prospective buyers a low or no-interest loan depending on their tax credit amount. This is due upon receipt of their money from the government. However, if the borrower did not honor the loan, then it would become a junior lien on the property. In addition, it would have interest rates above the prime lending rates. The first state to launch this program is Missouri followed by Tennessee, Pennsylvania, New Mexico, and Delaware.

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Subprime Lending comes back

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