FHA loans have significantly aided homeowners, new home buyers and lending professionals during the mortgage crisis.  FHA loans continue to provide affordable home financing and fixed rate refinancing with little equity and minimal down-payments required.

Nick Timiraos recently wrote an article outlining how U.S. housing officials are in the process of planning that would essentially allow some first time home buyers to purchase a house by paying little money upfront. With this FHA loan, 1^st time buyers could benefit from an $8,000 income tax credit towards their down payment on loans backed by the Federal Housing Administration. The idea is to enables new home buyers to “monetize” the tax credit. Right now, home buyers must wait until they file their taxes to receive the credit.

The FHA is finalizing a program that would allow approved FHA lenders, non-profits, and state and local governments to fund short-term loans that could be used as down payments to be repaid once the borrower received the tax credit. Once they received their tax credit, they would pay off the short-term loan and put equity into their home.  The FHA requires a minimum 3.5% down payment on loans backed by the agency, which means that buyers could put little or nothing down on homes up to $230,000. “It is close to having nothing down,” says Thomas Lawler, an independent housing economist.

The proposal, hailed by home builders and Realtors, is drawing some comparisons to the no money down programs that the FHA has worked to shut down. Congress ended a program last year that allowed home sellers to fund down payments to home buyers through nonprofit groups, and the FHA has blamed that program for an outsized share of loan defaults. Under that mortgage program, nonprofit groups would “gift” the 3% minimum down payment to a home buyer, often funded by the seller of the property. Buyers would move into the home without paying any of their own money for the down payment.  “We remain concerned that the lenient underwriting standards, low down-payment requirements and now the ability of FHA borrowers to purchase a home without putting any of their own equity into the purchase is creating a tremendous risk for the program and taxpayers in the future.”

Several states, including Pennsylvania and New Mexico, had already instituted similar programs. Housing Secretary Shaun Donovan outlined the plan Tuesday during a speech to the National Association of Realtors. “We think the policy is a real win for everyone,” he said.  Congress approved the tax credit in February’s stimulus bill, which provides up to $8,000 for first-time home buyers on a new or existing home. The tax credit expires December 1st.