Happy,

You make an excellent point. Here's how I'd look at the difference.

FHA requires a minimum statutory down payment of 3.00% (now 3.50%) from the buyer. This is credited against the purchase price of the home. Under FHA guidelines, the down payment can come from several sources - but all sources are disinterested parties in the transaction. Even if the buyers receive a gift for down payment from the buyer's family, the givers of the gift receive no benefit from the closing of the transaction.

The fundamental problem with seller-funded DPAs is that the seller and buyer are both strongly influenced to set the price of the home above a price to which they would normally agree to accommodate the DPA. The argument you make that a DPA is closely akin to a seller's contribution to the buyer's closing costs is sound on the face of it.

The difference between seller contributions to the sale versus seller-funded down payment assistance is simple. FHA bars a seller from contributing to the buyer's statutory down payment. To get around this ban, the seller-funded DPA companies created a process by which some of the funds permitted to go to seller contributions to the sale are diverted to back to the buyer for a non-permitted use, ie down payment.

In other words, for a fee, the seller-funded DPA companies hide the source of the down payment funds provided by the buyer at closing. This is the fundamental definition in law of money-laundering. Although HUD knows what's going on, and although the IRS revoked the DPA's tax-exempt status a couple of years ago (which formerly provided them a legal loophole to classify the seller-funded DPA as a "non-profit" gift), it has literally taken an Act of Congress to clear up the issue.

Further, the performance (or I should say lack thereof) support's HUD's argument that the use of seller-funded DPA grants directly correlates to the rise in FHA deliquencies. FHA insured loans made using seller-funded DPAs have twice the deliquency rate of all other FHA insured loans.

Why? who can really say... but my theory is that traditional means of providing down payment - buyer savings, family gift, or community grant - all come with some work on behalf of the buyer. Savings takes effort and discipline to accumulate. Family gifts indicate support and a willingness to help out the buyer. Community grants require home buyer education and qualification.

Seller-funded DPAs take absolutely no effort on the part of the buyer to obtain one. These "quickie grants" happen like magic at the closing table without any recourse to the buyer in the event of a default.

Regarding your argument about seller contributions: These are above and beyond the statutory down payment. The buyer is SUPPOSED to make the down payment regardless of whether the seller contributes to closing costs or not. Its somewhat facetious to say that a seller contributing to the buyer's minimum investment isn't a subversion of proven, reliable FHA guidelines.

I can understand why some folks want the seller-funded DPA programs back: DPAs helped them make money. But that gets to the root of the problem - the DPA money comes from a source that has a vested financial interest in seeing the transaction close.

No offense to Sue, Deep River and Jim, but I think there is a important perspective on DPA that you guys are missing. I know some of the folks at Nehemiah and they say the average gift is about 3.4% of the sales price. Let's be honest people, how many homes do we sell today that don't include at LEAST that in sellere's concessions? Is that moeny laundering? Both seller concessions and DPA impact the sellers net, by I never increase the sales price to do DPA. DPA makes sense in a buyers market and should be done as part of the negotiation upfront. Just like...uh... seller's concessions. And the skin in he game theory is bogus. I have done entry level buyer deals where the they came in with gift from Mom & Dad, but were not nearly as qualified as most of the DPA buyers I have dealt with. Neither have skin in the game, but how many of you think money from the folks is money laundering? DPA is for people who can qualify for an FHA loan, make enough money to pay the mortgage (I prefer 30 yr fixed), but don't have the where withall to save up the $20k for down and closing costs. If done correctly by an informed Realtor, this is a perfectly legal and legit deal where everyone wins. A few of my DPA buyers from 2001 were able to use their equity to upgrade and are still in the ir homes and thankful for the opportunity. Get off you high horses and do DPA the way it is supposed to be done. It's a great program.

Lynn, Don't give up, it just might take a little more time but it's worth the challenge. A couple of comments, if I may-
Nehemiah was still considered a little suspicious by many of us, as it doesn't require any money down by a buyer, and sometimes the price was inflated to incorporate the extra seller expense. Still the price could not go above what the house could appraise for so it wasn't the same as 2 years ago. In addition, the buyer cannot qualify under a fictional 'stated loan' where they were just flat out lying on what their income was. Therefore, it was one option available for someone who qualified for the loan but had not downpayment money.

There's other options- CalHFHA is one, and seller financing is another. The new options aren't going to require 20% down, just something....like 1 1/2% so don't lose faith...

As for losing out on bids, I have to assume that you're bidding on bank-owned properties. Those do not allow Nehemiah in almost all situations, In addition, if the bank priced them under market value then you need to expect others to be interested as well. The value of your realtor is in knowing how to advise you correctly during negotiations. Don't worry, the right home will fall right into your lap if you stay focused on what you want! Just keep educated on the market values....Good luck!

The only positive of the housing bill is that its eliminating these scams.

Lynn, you said: " I wasn't "dumb" enough to buy a house when the prices were out of reach" and you're in california. Have you seen that the decline in housing prices in california? Its still accelerating down, buying now may or may not be "out of reach" but you're gonna take a bath on a house as an investment. You seem dejected about renting, so make a deal with yourself. Figure out how much your house would've cost you monthly with your 97% LTV mortgage, PMI, taxes, homeowner's insurance and house maintenance, then subtract your current rent and renters insurance, and put the difference into a CD, or some investment vehicle. In a year you'll very likely have a sizeable downpayment and house prices will likely be much lower.

Zack

Lynn:

Please do not give up. If you have proven income, reasonable credit, and solid employment, you can become a home owner.

What you need is a community grant. California has grant programs for first time home buyers to help with down payment and closing costs. I'm not a Californian, so I know little about these programs, but if you talk to your Realtor, he/she can direct you to the info you need.

I Thank everyone for their answers. I was just confused about where that 6% was going. Might as well just ask the seller to knock off 6% for me.

Bottom line is, I have no way to prove myself as I don't have a down payment. (So I look like a loser) I have a great job and a great family that I support by myself. I wasn't "dumb" enough to buy a house when the prices were out of reach,(when people I knew were buying way expensive houses and barely making half of what I make) And now that the houses are more attainable for my family and I can afford it, I still can't buy a house. It feels like it will never be an option for me.
Unfortunately I'll be renting again. I'm too tired to keep losing bids, or not even be able to make a bid due to too many bids already in.

Thanks Again, Lynn

"Nehemiah Program- Having a hard time understanding how it works. Why do I need to bid over the asking price,?"

Not knocking you Lynn, but the reason why you are being requested to "bid over the asking price" is EXACTLY why Congress has finally banned seller-funded downpayment assistance grants for FHA insured loans.

They are little more than money laundering schemes... HUD and the IRS have been battling them since the day HUD was forced to allow them in back in January 2001. These programs are directly responsible for the delinquency rate on FHA loans going from 8% to 18% .

All seller funded DPAs are banned with FHA by October 1, 2008. If you have no alternative, you will have to act fast if you want to use Nehemiah, Ameridream, H.A.R.T. etc. Alternatively, your lender can refer you to community or state grants (which FHA has always wlecomed) or a gift from family.

Lynn, This is a confusing program. but the best way to understand it is that it is a program where you can get into a house with NO MONEY DOWN. That is it.

Basically the Nehemiah Program (along with others like it) were created to get around the FHA guideline that the Seller could not contribute a down payment to the Buyer.

In the past, The Buyer had to have 3% of their own funds or could have funds gifted to them for the down payment by a realative but not the Seller. So, what happens is the SELLER gives the 3% down payment to NEHEMIAH and NEHEMIAH inturn gives it to you. A bunch of red tape to get around a guideline. The other 3% should go towards your closing costs and prepaids, I would presume. You aren't getting $$ back at close. Basically the program gets you into a house with NO MONEY DOWN.

Whether or not they are raising the price to accommodate the concession, well, that is another issue all together. Keeping in mind, the house has to appraise for the sales price also.

The Nehemiah Program is working to pass new legislation to allow for their program to continue. Write to your elected officials by following the link below to show your support for The Nehemiah Program, down payment assistance, and the American Dream.

Tonja, Sue and Erin have discussed the fine points of Nehemiah very nicely. The problem I see with Nehemiah is that it is a shell game. The seller "contributes" 7% of the purchase price to Nehemiah.. The money is nicely laundered then "gifted" to the first time buyer. The buyer has very little skin in the game just as they have very little skin in the game on a traditional no down payment loan.

The seller is looking for the highest net price. If you offer $200,000 but the seller has to pay Nehemiah $14,000 (7%) Then the sellers price is really only $184,000 If you buy it with a nehemiah program. The seller has amuch better deal if he takes a LOWER offer from someone who does not involve Nehemiah.

That is how the lower offer of $190,000 or $195,000 ( Clean ) is better for the seller than your higher $200,000 (less $14,000 to Nehemiah)

How is it helping? If you are truly desparate to buy and can't raise your own down payment and are willing to pay higher monthly payments than if you had a normal downpayment then you could consider it a help. If you are stretching to put yourself in the same jeopardy that all those people who are losing their homes are in, then maybe that isn't such a help.

Read the link I posted below. Yes it will be in effect until 10.01.08, so as long as you close escrow on 08.30.08 or sooner, you are fine. After that no more seller assisted DP

I'd just like to weigh in as well. All my sources also say that Nehemiah will be in place until 10/1. I have yet to see what the bill passed yesterday actually entails. In fact, from all I can ascertain, it is a federal subsidy back to the banks themselves to help prevent further foreclosures. I didn't get anything on how it was to be implemented, nor if it actually addressed homebuyers assistance at all. Does anyone have any facts of what the bill plan was going to be (once it passes the Senate and is signed by Bush, of course)

Erin, the House passed the bill yesterday that bans seller contributed DP. The ban on DP was wrapped into the same bill that allows the government to extend a line of credit to Fannie and Freddie, without it those companies are toast. It passed the house with 272-152 votes. There is no doubt the Senate and the President will pass and sign the bill, if they don't Fannie and Freddie as we know it will go under.


http://money.cnn.com/news/newsfeeds/articles/apwire/60ebcab0…

Hi Tonje,

Sorry but I think you are wrong - Nehemiah is, as you say, "in danger." Can you please cite the source for your information? The information I have comes from Nehemiah directly. According to the folks at Nehemiah itself - this is not a done deal, and if the president signs HR 3221 then their program will effectively end on 10/1/08.

http://getdownpayment.com/updates/legislativeinfo.asp

Erin

To the poster below, Erin .....House already passed it. Nehemiah is no longer in danger, it is done.

Lynn,

The home does get enrolled in the Nehemiah program, but it is much less extensive than you might expect. When offering on a property with Nehemiah DP assistance, your agent should have a seller enrollment form to attach to the offer. This is a very simple form that simply informs Nehemiah that DP assistance is going to be needed. All homes gets accepted by Nehemiah as long as it fits the FHA requirements and does not go over the allowed limit. The monies from the seller never touches your hands. It is all being taken care of through escrow. But yes the Nehemia does gift you the money (but it orignially comes from the seller). To understand it better.... if you want to buy a home, you need a minimum of 3% in cash for your downpayment. You do not have that, so it has to come from somewhere. Lets assume you are buying a 200k house, your loan will be 194k, and the remaining 6k would come from you (with DP is comes from seller thru Nehemiah).

A seller does look at an offer with DP less favorably, even if your offer will give the seller a higher bottom line. With having the DP yourself, you should be much better off. Good luck to you!

To address your more recent post - the funds from the seller and Nehemiah are all passed back and forth via escrow. The funds never enter or exit your hands directly. The house you are purchasing does not have to be "enrolled" in the Nehemiah program, however when you and your agent write your purchase agreement (offer), you add language that the seller agrees to participate in the program and make the contribution, etc. There is actually a "Participating Home Agreement" that you can download from Nehemiah's website to submit with your offer.

The appraisal issue is a very real issue. You will not be able to obtain your FHA loan unless the property, inclusive of all credits and downpayment assistance, appraises at or above your agreed upon purchase price. This is why it is more attractive for a seller, when presented with multiple offers, to accept one that is possible a overall lesser price - but does not include downpayment assistance, other credits, etc.

If you have another source for your downpayment - I highly recommend using that strategy is you can.

Hi Lynn,

Nehemiah is a 3rd party downpayment "gift" program. You are probably using an FHA loan program, which allows for up to a 6% credit from the seller within the loan. The FHA program also requires a downpayment of 2.85%, which does not have to be your own money - it can be a gift from a family member, or another 3rd party...not the seller directly though. So the seller gives the funds to the 3rd party (Nehemiah), who in turn gives it to you.

Hopefully your agent and loan officer have reviewed this program with you, but essentially you are asking the seller to make a contribution of 6% to the Nehemiah program, plus a processing fee. The Nehemiah program then gifts the funds to you for your downpayment and/or closing costs.

If you are attempting to purchase a home in Carmichael, this is indeed a tough proposition for a seller to swallow right now, considering just how many buyers are in the market right now in that area. Many homes there, if they are priced appropriately, are receiving multiple offers from multiple buyers...many of those buyers are also using the same FHA/Nehemiah scenario you are trying to use - BUT many are not, and have their own downpayment and closing costs. There are also a lot of investor buyers right now that have all cash (or a lot of cash - say 20% down or more). I have clients who have made offers on 8-9 properties before going into contract for a home. This is an exciting time for you - but be patient. Hopefully your agent is giving you proper guidance...perhaps it is time for a new strategy? Look at properties that are overpriced, and have been languishing on the market for 90+ days...those sellers may be motivated enough to consider your scenario.

Now, having said all that...the Nehemiah program is in danger of being eliminated all together. There is legislation currently that is expected to be passed by the House of Representatives very soon (like within a week). It is expected that once it passes, the President will also approve the legislation. I heard yesterday from my go-to loan officer that the Nehemiah Northern California Area Manager's (Donny Jones) outgoing voice message on his cell phone states -- Nehemiah has been given an extension until 10/1/08 to fund current and new requests. Hopefully this information is correct.

Good luck to you with your home search.

Erin

Thanks Tonje,
so now I don't completely understand the "gifting back to me" part. Do you actually mean they give this $$ back to me?
What if the house being sold isn't enrolled in the program?
We recently offered $250,000 on a house listed at $214,900, of course asking for 6% back. We were told we would not get the house because it wouldn't appraise for that much and the other offers had down payments, though they we're offering about $235,000.
I'm a bit frustrated because we have to out of our rental by September 1st. So I'm in a time crunch.
I've also figured out a way to come up with 3% down, so I'm hoping my next offers will be more effective.

Forgot to add.... When you offer on a property asking for DP assistance and closing costs. You need to think of the offer from a sellers standpoint. An offer of 200k with 6% contribution, in reality is an offer of 188k, because the remaining 12k goes to you. So it might be necessary on certain homes to offer more than asking. However you should never pay more than comps no matter what, so it can get a little tricky.

Lynn,

The down payment assistance programs works like this. The seller of the property enrolls the home in the program, when a buyer comes along and want DP assistance the seller pays the 3% or more to Nehemiah, then Nehemiah gifts it back to you prior to close. Many people thinks that Nehemiah is actually giving you the money, however the money comes from the seller thru Nehemiah. Keep in mind that the House just passed a bill that will end DP assistance programs. The deadline to close escrow is September 30th 2008. So if you need this program to buy a home you need to act now.