A few weeks ago, Missouri’s state government implemented a program enabling home buyers to utilize the federal government tax credit as a down payment. Now, several U.S. state home builder associations are trying to follow Missouri’s lead by having their state governments pass bills to employ similar programs.

The Missouri program allows home buyers to receive the federal government’s $8,000 tax credit for first-time home buyers when they close on their house, instead of waiting for their federal tax refund. The state loans the home buyer up to 6 percent of the home purchase price, which is then used for down payment and closing costs. The home buyer then files for the federal tax credit and uses the credit refund to pay off the loan from the state.

In most states, new home builders are struggling to sell their product because buyers are having difficulty coming up with a down payment. The buyers used to rely heavily on a FHA program known as “seller-funded down payment assistance,” which allowed them to pay a percentage of a home’s sale price but it was dissolved on October 1, 2008.

One of the main reasons is was eliminated was that  the FHA found the foreclosure rate to be about 80% higher on loans with down payment seller assistance verses FHA loans without.  There was also concern about inflated property values as a result of the seller funded DPA programs.

Other states that are working to adopt Missouri’s program include Indiana, Kentucky, Michigan, Minnesota, New York, Oregon, Tennessee, Texas and Washington.