For the past few years, FHA has allowed charitable non-interested parties to supply the down payment to a borrower on FHA loans. Unfortunately, this practice caused housing prices to be inflated as the seller would raise their price and then contribute the increase to the charity as a donation. The charity would then give a gift to the borrower and thus have the down payment for a home with an FHA mortgage. The challenge is that the borrower had no vested interest in the house and when times got tough it was easy for them to walk away since they would be losing nothing other than a home with an inflated price. Selling the home was difficult in a flat or declining real estate market. This practice is one of the logs on the bonfire of the mortgage industry that is burning across our nation. Here is the latest on this practice:
FHA will issue official guidance regarding implementation of the regulation regarding a mortgagor’s cash investment. In the interim, to address the questions raised by many industry partners, FHA is providing the following information:
1. Nehemiah Corporation of
2. HUD has agreed to grant the AmeriDream Downpayment Assistance Program relief from the effective date of the rule until February 29, 2008.
3. All other similar downpayment assistance providers have not been granted relief from the effective date of the rule, which is October 31, 2007.
Provided that the homebuyer has entered into a contract of sale (including any amendments to purchase price) on or before October 31, 2007, FHA will recognize the gift if made to the homebuyer and properly documented as an acceptable source of the downpayment.
To read the final rule in its entirety and for more information please visit: http://hudclips.org/sub_nonhud/cgi/pdf/4846a.pdf
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