Section Subtopics Down Payment Assistance Government Grants Government Grants By State

Down Payment Assistance Programs

  Down payment assistance is an incredibly empowering

  homebuyer resource allowed under the FHA home loan

  program. It permits the seller to give the buyer money toward a

  down payment, without violating lender’s rules that forbids

  this.  It sounds complicated but is in fact used by one out of

  every five FHA homebuyers, and is endorsed by the FHA and

  most lenders and realtors.  

  A down-payment assistance program is necessary because

  lenders don't allow home sellers to give down-payment money

  directly to buyers.  However, under the rules governing FHA

  loans, borrowers can accept down-payment monies from a

  charity. This loophole allows down-payment-assistance

  programs to facilitate the home buying process for low-income

  and minority families.

  The seller gives money to a nonprofit down-payment-

  assistance program before the closing.  The program then

  gives that amount to the homebuyer at the loan closing (minus

  a small – typically $300 - $500 – administrative fee).  The

  amount gifted can be as much as the lender allows for gifts,

  typically 3% to 6%.

  Many sellers are willing to give this money because it qualifies

  more buyers for their home.  Sellers are especially willing if

  the sale price can be raised to accommodate the money they

  give.  Of course, a sale rice above the appraised value is

  prohibited by lenders because of the risks and difficulties

  posed for the lender as well as the buyer, therefore, raise the

  sale price only if the value allows for it.   

  While the majority of programs are legitimate, it is always

  important to avoid questionable programs by doing your due

  diligence.  One reputable source for referrals is the

  Homeownership Alliance of Nonprofit Down Payment

  Providers, or HAND.  HAND has a set of best practices and a

  code of ethics, and lobbies Congress and HUD on behalf of its

  members. You can find a list of member companies posted on

  HAND's Web site.

  These programs are a popular type of down payment

  assistance.  Government grants are another.