HUD Okays Bridge Loans for First-Time Homebuyers

The U.S. Department of Housing and Urban Development gave FHA-approved lenders the go ahead to develop bridge-loan products that enable first-time buyers to use the $8,000 federal tax credit up front. This eliminates a major stumbling block for first-time homebuyers: getting up to $8,000 NEXT YEAR doesn't help you find the money for the downpayment and closing costs THIS year.

Details are still fuzzy on this. As I understand it, buyers using FHA mortgages may be eligible for a bridge loan (presumably offered by the same lender) to allow them to use their future tax credit at the time of purchase. However, the loans can not be used to cover the minimum 3.5% required for a downpayment, but would be used to increase the downpayment above 3.5% or for closing costs.

In my market, Rochester, New York, this is very important, since closing costs can often be a bigger item than downpayment, due to our high property taxes resulting in large up-front pre-paid items. I have had many potential buyers tell me recently that even with the promise of a tax-credit, they were still not able to handle the additional closing costs necessary to buy a home. This program will help them.

It is best to consult with your bank or mortgage company about available bridge loans. Remember that the credit is for first-time homebuyers only (including those who have not owned a home for the past three tax years), the purchase must be closed by December 1, 2009, and there are income limitations (see my previous blog post). These bridge loans are not available at this time on conventional, SONYMA or other loan products, although my guess is that private lenders will jump on this bandwagon soon. You must be qualify for, and be willing to accept, an FHA mortgage to be able to use the HUD-approved bridge loan program.

Ironically, this change in the program will probably be TOO MUCH stimulus for the Rochester region. First-time homebuyers have been snapping up all of the properties under $150,000, resulting in quick sales and even multiple offers. The market does not currently have enough inventory of affordable homes for these buyers. This change will bring even more buyers into the market. Sometimes, too much of a good thing is bad. I have a number of buyers looking today that can't find a house fast enough...who would have thought we'd have buyers but no listings??? It proves, once again, that the Rochester market has weathered the real estate storm very well.