HUD Ends Most Down Payment Assistance Programs!!
Down Payment Assistance Programs. You know, where the seller makes a donation to a ‘charity’…. and that charity turns around and ‘gifts’ those monies to the buyer to satisfy the 3% Down Payment requirement on FHA loans. Well, effective October 31st, 2007(see exception below) these programs will be GONE!!

Monday October 1, 2007 HUD has ruled on what I considered the most ridiculous loophole affecting their programs.

The final rule establishes that a prohibited source of Down Payment Assistance(DPA) is a payment that consists, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale:

1. The seller
2. Any other person or entity that financially benefits from the transaction
3. Any third party or entity that is reimbursed directly or indirectly by the seller

The above exclusions seem to describe exactly what is happening when these Faux Charities are allowed to circumvent the underwriting rules using the charity loophole.

While I have been mostly neutral about the DPA, I have learned to understand its impact:
FHA, for example, allows for 6% of the contracted sales price to be rebated back to the buyer in the form of closing cost assistance. This is usually facilitated by offering more for the home in price negotiations and accepting your discount in the seller rebate. The DPA programs effectively made that 6% turn into 9% overnight. Uh, can you say ‘Over Inflated Prices’?!?!

President Bush is pushing for 100% financing on the FHA loan. So, maybe this setback for borrowers will be short lived. At least we will have a little more truth in real estate prices in the future if this is passed by legislation.

Don’t have the 3% Down Payment required? You can still get a gift from a family member or charity(a real charity) or even a State, County or Local Down Payment Assistance Program from the government.

You can read the Department of Housing and Urban Development’s full ruling here=> HUD Ends Most Down Payment Assistance Programs

Exception: It appears that Nehemia program is grandfathered in until March 31, 2008 as the result of an earlier lawsuit with HUD settled in April 1998.

HUD Ends Most Down Payment Assistance Programs!!
Down Payment Assistance Programs. You know, where the seller makes a donation to a ‘charity’…. and that charity turns around and ‘gifts’ those monies to the buyer to satisfy the 3% Down Payment requirement on FHA loans. Well, effective October 31st, 2007(see exception below) these programs will be GONE!!

Monday October 1, 2007 HUD has ruled on what I considered the most ridiculous loophole affecting their programs.

The final rule establishes that a prohibited source of Down Payment Assistance(DPA) is a payment that consists, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale:

1. The seller
2. Any other person or entity that financially benefits from the transaction
3. Any third party or entity that is reimbursed directly or indirectly by the seller

The above exclusions seem to describe exactly what is happening when these Faux Charities are allowed to circumvent the underwriting rules using the charity loophole.

While I have been mostly neutral about the DPA, I have learned to understand its impact:
FHA, for example, allows for 6% of the contracted sales price to be rebated back to the buyer in the form of closing cost assistance. This is usually facilitated by offering more for the home in price negotiations and accepting your discount in the seller rebate. The DPA programs effectively made that 6% turn into 9% overnight. Uh, can you say ‘Over Inflated Prices’?!?!

President Bush is pushing for 100% financing on the FHA loan. So, maybe this setback for borrowers will be short lived. At least we will have a little more truth in real estate prices in the future if this is passed by legislation.

Don’t have the 3% Down Payment required? You can still get a gift from a family member or charity(a real charity) or even a State, County or Local Down Payment Assistance Program from the government.

You can read the Department of Housing and Urban Development’s full ruling here=> HUD Ends Most Down Payment Assistance Programs

Exception: It appears that Nehemia program is grandfathered in until March 31, 2008 as the result of an earlier lawsuit with HUD settled in April 1998.

HUD Ends Most Down Payment Assistance Programs!!
Down Payment Assistance Programs. You know, where the seller makes a donation to a ‘charity’…. and that charity turns around and ‘gifts’ those monies to the buyer to satisfy the 3% Down Payment requirement on FHA loans. Well, effective October 31st, 2007(see exception below) these programs will be GONE!!

Monday October 1, 2007 HUD has ruled on what I considered the most ridiculous loophole affecting their programs.

The final rule establishes that a prohibited source of Down Payment Assistance(DPA) is a payment that consists, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale:

1. The seller
2. Any other person or entity that financially benefits from the transaction
3. Any third party or entity that is reimbursed directly or indirectly by the seller

The above exclusions seem to describe exactly what is happening when these Faux Charities are allowed to circumvent the underwriting rules using the charity loophole.

While I have been mostly neutral about the DPA, I have learned to understand its impact:
FHA, for example, allows for 6% of the contracted sales price to be rebated back to the buyer in the form of closing cost assistance. This is usually facilitated by offering more for the home in price negotiations and accepting your discount in the seller rebate. The DPA programs effectively made that 6% turn into 9% overnight. Uh, can you say ‘Over Inflated Prices’?!?!

President Bush is pushing for 100% financing on the FHA loan. So, maybe this setback for borrowers will be short lived. At least we will have a little more truth in real estate prices in the future if this is passed by legislation.

Don’t have the 3% Down Payment required? You can still get a gift from a family member or charity(a real charity) or even a State, County or Local Down Payment Assistance Program from the government.

You can read the Department of Housing and Urban Development’s full ruling here=> HUD Ends Most Down Payment Assistance Programs

Exception: It appears that Nehemia program is grandfathered in until March 31, 2008 as the result of an earlier lawsuit with HUD settled in April 1998.

Actually, the HUD was immediately sued over this rule, and the rule was stayed the same day as it was made, pending litigation from the downpayment assistance programs.

The stay was originally temporary, but as of 3/5/08, the judge made it permanent, ruling that the HUD was unlikely to prevail in their arguments. All downpayment assistance programs that meet IRS guidelines for operating as chartered still are available.

see here for the ruling:

http://www.ameridream.org/Documents/HUDRule/HUD-Rule-Vacated-Court-Order-Opinion-3-5-08.pdf

Whether or not the downpayment assistance programs are a good idea (they’re not, if you can’t save 3% of the home’s value that you’re buying – and relatively quickly at that, you probably have no business buying that home), they are still legal, and that is unlikely to change anytime soon.

On the original posters question though, the seller won’t GIVE you that 3%, it’ll be tacked onto the house (if they were willing to give it to you, you could just as easily have bargained it down that 3% + the $500 or so fee the downpayment service charges, which is paid by the seller). In addition, as you noted, you’d be on the hook for the 1.5% up front MIP that the FHA charges for their loans, as well as the 0.5%/year mortgage insurance that they require. With 20% down, you avoid both those charges under a standard mortgage, along with the lower monthly payment. Unless you’re planning on walking on the mortgage, in the longer run, it’s probably better to do the 20% down.

Actually, the HUD was immediately sued over this rule, and the rule was stayed the same day as it was made, pending litigation from the downpayment assistance programs.

The stay was originally temporary, but as of 3/5/08, the judge made it permanent, ruling that the HUD was unlikely to prevail in their arguments. All downpayment assistance programs that meet IRS guidelines for operating as chartered still are available.

see here for the ruling:

http://www.ameridream.org/Documents/HUDRule/HUD-Rule-Vacated-Court-Order-Opinion-3-5-08.pdf

Whether or not the downpayment assistance programs are a good idea (they’re not, if you can’t save 3% of the home’s value that you’re buying – and relatively quickly at that, you probably have no business buying that home), they are still legal, and that is unlikely to change anytime soon.

On the original posters question though, the seller won’t GIVE you that 3%, it’ll be tacked onto the house (if they were willing to give it to you, you could just as easily have bargained it down that 3% + the $500 or so fee the downpayment service charges, which is paid by the seller). In addition, as you noted, you’d be on the hook for the 1.5% up front MIP that the FHA charges for their loans, as well as the 0.5%/year mortgage insurance that they require. With 20% down, you avoid both those charges under a standard mortgage, along with the lower monthly payment. Unless you’re planning on walking on the mortgage, in the longer run, it’s probably better to do the 20% down.