FHA Down Payment Assistance Program May Be Gone

I found a great article at calculatedrisk.blogspot.com. According to the Washington Post, the government is going to stop allowing contributions from "charities." Now I am all for helping people out but I saw an issue with this when I first got into real estate in 2000.

The rules for FHA are/were that the Seller can't contribute the required 3% downpayment for their loan. As some kind of a loop hole, "charities" were started. There are many but Ameridream was the biggest I knew of. The seller would "donate" for example $7000 to the program to help "some" buyer. Than the person who bought their home would surprisingly get $6000 that they needed for their downpayment.

It is essentially legal money laundering and the "charity" would earn $1000 for each donation. Of course the Seller would raise the price of the house by that amount but that happens on a lot of deals. So I disagree that it helps raise prices on it's own. That happens anytime the seller is allowed to pay for closing costs.

As conventional loans started pricing better FHA loans got to be too expensive and I haven't done one in about 5 years. Now with Subprime biting the dirt, FHA is coming back.

My annoyance is that the government would allow the money to go through an unknown channel which made money costing more to the Buyer than if the Seller contributed directly.

Thanks for the heads up CR.