Last Call For Downpayment Assistance Programs
Real estate investors have long relied on seller-funded downpayment assistance programs to help creditworthy tenants and other buyers purchase entry-level homes that the investors have held as rental properties. But as of Oct. 1, a federal ban on the use of these programs with home loans insured by the Federal Housing Administration (FHA) will put an end to that practice, at least temporarily.
The ban is part of the federal housing stimulus package that President Bush signed July 30. The 694-page Housing and Economic Recovery Act of 2008 prohibits the use of a seller-funded downpayment with an FHA-insured loan. Specifically prohibited is any downpayment that was provided before, during or after the sale of the home by the seller, any other person or entity who benefits financially from the transaction, or any third party or entity who is reimbursed, directly or indirectly, by the seller or any other person or entity who benefits financially from the transaction.
That restriction clearly rules out seller-funded down payment assistance programs such as those sponsored by Nehemiah Corp. in Sacramento, Calif., and AmeriDream in Gaithersburg, Md. These two organizations (and other smaller organizations) collect "donations" from home sellers and convert those donations into "gifts," which then become the buyer's downpayment to purchase the seller's home. New-home builders, real estate investors and other home sellers have utilized these programs to help more than 1 million people buy a home.
Home buyers and sellers can still use these programs with an FHA-insured mortgage until the ban becomes effective Oct. 1 . But after that, this type of downpayment assistance will be prohibited on virtually all types of mortgages. That's because very few, if any, conventional loan programs allow a downpayment from the seller's funds.
The FHA has wanted to ban seller-funded downpayments for some time because home buyers who've used these programs have been significantly more likely to default on their loan, according to the agency. Supporters of the programs say the FHA's data is flawed and the programs have offered good opportunities for minority and low-income families to buy their own homes. Many investors agree with those arguments.
Nehemiah and AmeriDream have launched separate efforts to lift the ban and bring back their programs, perhaps with some changes that could address the FHA's concerns. Each organization has set up its own Web site:
Nehemiah's is www.dpagroundswell.org and AmeriDream's is www.supporthomeownership.com.
The Web sites aim to disseminate information about seller-funded downpayment assistance programs and solicit support for H.R. 6694 (Green, D-Texas), a bill that has been introduced in Congress to give these programs a second life.
Both of those Web sites include form letters and links that enable supporters to send messages to their representatives in Congress. HomeVestors also supports this effort and has created a sample letter that you can personalize and send to Congress as well.
Copyright 2008, HomeVestors of America, Inc. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author.
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