By Gina Pogol
Mortgage Credit Problems Columnist

Emma Asks: Dear Gina, I want to buy a house in a new subdivision in California. I heard that because I'm a first time home buyer, plus buying a brand new home in California, I can get $18,000 in tax credits. is this true? Can I use them as my down payment if I get an FHA loan? My credit is kind of bad but not horrible.

Gina Says:

Dear Emma,

Thanks for writing. First though, I have to give you some bad news. As of July 3rd, California ran out of money for the $10,000 credit. The $100 million allocated has been used up and the state is accepting no more applications on that front.

The good news is that the federal government is still doling out the $8,000 home buyer credit for you first timers. And if you can get a bad credit loan or an FHA loan approval, you can get your home.

Now, I'm reading a lot about people being told they can use that $8,000 toward their down payment and closing costs through various state and charitable programs. But as far as FHA is concerned, there are no zero-down FHA loans on offer. I got that from Chairman Shaun Donovan himself in a June speech--the agency is committed to not repeating mistakes of the past, which showed that people who had no money of their own invested in the homes defaulted a lot more.

You can use the $8,000 towards your down payment, but you still have to come up with 3.5% yourself. The $8,000 can be used to make a BIGGER down payment. That's all. If I were you I'd make the little 3.5% payment, see if the builder (or a good pal) is willing to contribute anything towards your closing costs, and when you get your $8,000 put it in a safe account to protect you from emergencies.

Thanks a bunch for writing and good luck.

Gina

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