May 30th . In a rapid policy movement that could help thousands of people, the government announced that the tax credit for first-time homebuyers can now be used to help pay closing costs on mortgages insured by the Federal Housing Administration.

The stimulus bill passed in February provides first-time home buyers a tax credit equal to 10 percent of the home's purchase price or  up to $8,000, whichever is less, when they file their taxes. Now, with the new plan buyers using FHA-insured loans will be allowed to treat the tax credit as additional down payment funds, or use it to pay for the closing expenses. Buyers would still have to come up with the 3.5% cash down payment, but this tax credit can be used for extra down payment which may provide the buyer with a better interest rate.  States and other organizations will also expand plans to help consumers who seek non FHA loans.

"Families will now be able to apply their anticipated tax credit toward their home purchase right away," said Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, which oversees FHA.

This is not only good for first-time buyers but possibly all  homeowners. As first timers move into the market it takes pressure off the resale inventory. To the extent that existing homeowners who want to move up probably have to sell their existing home, this new policy can have a dramatic impact. Recently up to 40% of all home sales have involved first time buyers. This figure should increase next month.

For more information on the new policy visit 

http://www.hud.gov/news/release.cfm?content=pr09-072.cfm