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FHA Downpayment Assistance Changes

Posted on October 10, 2007 by Ray Williams (NMLS #216267).

HUD announced changes in what sources they will allow borrowers to use for downpayment funds.

FHA loans require up to a 3% downpayment – it varies based on location, purchase price and whether or not the funds are ‘gift funds’.  This change that was just announced eliminates the ‘seller assisted’ downpayment programs – basically non-profits that allowed the seller to funnel the downpayment to the borrower from seller proceeds through a ‘grant’ program.  This has been used frequently for the last 9 or so years.  HUD has a concern that this practice has contributed to inflated home prices.

Some of the programs will be allowed through the end of this month – after that only the Nehemiah can be used until the end of March 2008.

We have used Nehemiah for years and can answer your questions regarding this change.

Keep in mind – the funds offered by state, county and city programs are NOT effected by this, and gift funds from family members and a few other sources are still allowed.

Below are specifics from the news release:

Effective October 31, 2007,  HUD will prohibit the use or downpayment assistance programs that, in whole or in part, consists of funds provided by any of the following parties before, during, or after closing of the property sale: the seller, or any other person or entity that financially benefits from the transaction; or any third party or entity that is reimbursed directly or indirectly by the seller, or any other person or entity that financially benefits from the transaction.  All down payment seller assisted programs except for Nehemiah apply to this ruling.

Additional notice on effective date: The effective date of this rule is October 31, 2007 .  Therefore, in order for the HomeBuyer to use a gift that was derived from the seller, the HomeBuyer must have entered into a contract of sale (including any amendments to purchase price and said contract must be fully executed, i.e. offer and acceptance before that date.

Due to a settlement agreement entered into between the Nehemiah Progressive Housing Development Corporation and HUD in April 1998, resolving litigation between the two parties, the Nehemiah Program will be permitted until March 31, 2008.

As always – call or e-mail us with your questions,


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