$8,000 First Time Homebuyer Tax Credit Loan

When word first came out that the feds were handing out $8,000 for first-time homebuyers (and buyers that have not owned a home in the last 3 years), it stirred interest.  There were many questions about how to get the cash during the purchase.  Once it was realized it was a tax credit - and not a $8,000 check to use for closing costs, down payment, appliances, etc. - the buzz died.  It did not spur the market as the government hoped.

Well, the federal government is winging it again.  The feds are a little perplexed that their redistribution of money isn't working.  The administration decided to make the tax credit a short term loan.  The media jumped on it this weekend hyping it up as "$8,000 short-term loans to buy a house!"

What are the facts so far?

• The tax credit/loan is for FHA loans only.
• FHA loans account for only 25% of all mortgages used for purchases.
• The $8,000 redistribution loan - tax credit - still can not be used for the 3.5% down payment required by FHA.
• It can, however, be used for closing costs - which the seller can pay anyway - and additional down payment.

What are my thoughts about the $8,000 tax credit/short-term loan?

• If the government is really serious about interfering in the free market and wants to move real estate, why not let the $8,000 redistribution loan cover the FHA-required 3.5% down payment? 3.5% of a $200,000 purchase price is $7,000. Perfect!
• I’ll take it a bit farther. If the administration is really serious, why not apply the $8,000 to all mortgage products including conventional loans through Fannie Mae and Freddie Mac, VA mortgages and Rural Development loans?
• Why not get rid of the FHA-required 3.5% down payment for first time home buyers? This is where the government was initially going when it overhauled FHA loans a couple years ago. Oops.
• This is just another redistribution of wealth. When the government hands out money, it is taxpayer money. The top 60% of income earners are funding this. The bottom 40% of income earners that pay payroll taxes get that money back as well as various tax credits like the child tax credit. April 15^th has become a windfall day for millions of U.S. citizens. This is just another redistribution of wealth expanding the reliance of the population on the federal government.
• The federal government dumped billions of dollars into the U.S. automobile industry over the last few months. Where did the automobile industry end up today? What a colossal waste of my – and your – money.

I see this as yet another half-thought-out blind stab at a government fix to a free market. From what I’ve read so far, I don’t expect this short-term loan to stimulate much more than questions.

What are your thoughts?