Key Provision of the Housing Stimulus Bill (H.R. 3221): Facts About Seller-funded Downpayment Assistance Provision
(last updated 7/31/08)
Contrary to an email you may have received, the Housing bill signed by the President on July 30, 2008, does not eliminate all downpayment assistance programs from eligibility for FHA insurance. Only those programs that are funded directly from the seller or other party to the transaction are prohibited. Downpayment assistance from family members, government programs, or charities that are not seller-funded is still permitted.
The prohibition goes into effect October 1, 2008.
View a complete summary and history of the issue
Main points about the Seller-funded Downpayment Assistance Provision
- Seller-funded downpayment assisted FHA loans have a very high default rate. In FY2007, the default rate on seller-funded downpayment loans was more than 28%, roughly three times the default rate on FHA loans without seller-funded downpayment assistance.
- The FHA does not collect enough in premiums to sustain a 28% default rate on its loan portfolio without the need to raise premiums for all FHA borrowers or receive a federal subsidy for the first time in the 71-year history of the FHA program.
- FHA is the only mortgage program that has allowed seller-funded downpayment assistance.
- Under the legislation, FHA borrowers can still receive a 100% loan. The only requirement is that they must contribute 3.5% of the total costs in either the downpayment and/or closing costs.
What NAR Is Doing Now
NAR understands the concerns our members have about the elimination of these programs and is talking to Nehemiah and the other provider-groups to see what changes can be made in their programs that would allow downpayment assistance to be provided. In addition, NAR will be working with Chairman Barney Frank (D-MA) and Subcommittee Chairwoman Maxine Waters (D-CA) who have indicated their desire to find a way to save these programs.
Finding Alternative Downpayment Assistance Programs:
There are downpayment assistance programs that will still be permissible.
The American Dream Downpayment
Tips to locate downpayment assistance providers (PDF: 39K)
