News Flash - FHA KOs Down Payment Assistance Programs!

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For many years, down payment assistance has been provided by non-profit groups such as the Nehemiah Foundation, Ameridream and others. Under these down payment assistance programs, the non-profit agency would give a gift to the buyer of 3% or more of the sales price of the home. In return, the seller of the home would make a donation to the non-profit foundation in the amount of the gift plus an administration fee. HUD has looking hard at these programs for quite a while and action has been fermenting since earlier in 2007 when the IRS began auditing and subsequently denying non-profit organization status to many of these groups. In July, HUD themselves released a potential rule forbidding the use of such down payment assistance on FHA loans for public comment. The adoption was delayed once while allowing for further comment.

Now, according to Reuters on Friday, FHA will be disallowing any down payment assistance from a non-relative who has a financial interest in the transaction.

Details are available here or here.

The latest version of FHA changes working their way through Congress, however, includes substantial lowering of the FHA down payment requirements which will most likely make these programs obsolete anyway.