May 12, 2016
We’ve gotten several questions recently about FHA loan rules for down payment assistance programs and related topics. While we’ve addressed issues like this before, it never hurts to revisit topics like these, especially since the FHA transitioned from its previous single family home loan rule books into the single, comprehensive HUD 4000.1.
In the past, certain types of down payment assistance grant programs such as NewSong, Grant America, and Nehemiah operated by providing what was known as “seller provided down payment assistance”. In 2008, President Bush signed an act that prohibits such assistance, so all seller-provided down payment funds were no longer possible.
But there are state and local programs that do provide some type of down payment assistance. If these programs meet FHA guidelines and requirements, a borrower may be able to use such help. What does HUD 4000.1 say about down payment assistance? Page 222 advises that there are no programs that have an official “FHA stamp of approval”. The rules here seem to imply that the FHA won’t endorse one program over another:
“FHA does not ‘approve’ downpayment assistance programs administered by charitable organizations, such as nonprofits. FHA also does not allow nonprofit entities to provide gifts to pay off:
–Installment Loans
–credit cards
–collections
–Judgments
–liens
–similar debts
The Mortgagee must ensure that a gift provided by a charitable organization meets the appropriate FHA requirements, and that the transfer of funds is properly documented.”
Furthermore, FHA loan rules state that in cases where a charity “makes a gift that is to be used for all, or part, of a Borrowers downpayment, and the organization providing the gift loses or gives up its federal tax-exempt status, FHA will recognize the gift as an acceptable source of the downpayment provided that:
–the gift is made to the Borrower;
–the gift is properly documented; and
–the Borrower has entered into a contract of sale (including any amendments to purchase price) on or before the date the IRS officially announces that the charitable organizations tax-exempt status is terminated.”
Essentially, FHA loan rules indicate that the lender will be required to properly document the source of the gift funds, insure that they are indeed a gift and not a loan, and insure that other requirements (including lender standards and state law where applicable) are met.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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