REALTORS CAN SELL HOUSES USING FHA

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1 REALTORS CAN SELL HOUSES USING FHA WITHOUT SELLER-FUNDED DOWN PAYMENT ASSISTANCE Right now, the big buzz among REALTORS is the elimination of seller-funded down payment assistance with FHA products. If you have potential homebuyers who may find themselves restricted in their ability to provide a down payment, you should know about the alternative strategies and tools available that may help your client proceed with that new home purchase. Rising foreclosure rates, recklessly-applied declining market policies and universal PMI limitations for conventional loans have mandated that down payments are back to a basic 5% level, not including closing costs. Yet, regardless of the recent decline in property values, the median home price in Maryland in June was just over $306,000, which was $100,000 above the median price three years ago. For a median priced home in Maryland, with no assistance or gift funds available, a buyer would require approximately $27,540 cash for a conventional loan, assuming a 5% down payment and about 4% in settlement-related expenses. For an FHA loan (financed under the new law, without any gifts or assistance), the cash requirement would be about $17,595 including $10,710 for down payment and $6,885 for the closing costs that would be in excess of the new 100% LTV cap. First-time homebuyers often have good credit and the ability to make a monthly mortgage payment, but most lack sufficient resources for the down payment and closing costs. But there are programs that may be of help to many. I. The NEW Regulation: What s Allowed and What s Not The housing stimulus bill signed into law on July 30, 2008 contains many reforms critical to housing markets, including FHA reform, GSE reform, a homebuyer tax credit, and permanent increases to the FHA and GSE loan limits. This bill will help millions of American families avoid foreclosure and safely and affordably achieve the dream of homeownership. Housing advocates and critics have focused on that portion of the bill that eliminates down payment assistance from sellers or from anyone who profits financially from the transaction. Sellers may not use Nehemiah, AmeriDream, Genesis or any similar nonprofit programs because in these transactions, the down payments do not proceed from detached and disinterested generosity, but are in response to an anticipated economic benefit, namely facilitating the sale of the seller s home. First, the new rules: The effective date for the prohibition of seller-funded down payment assistance programs is October 1, Loans from family members and approved government programs are permitted. Gifts from family members, approved government agencies, employers, labor unions and tax-exempt 501(c)(3) organizations are permitted.

2 Sellers may not give funds to a family member (or other permitted entity) which are then gifted to the buyer. Sellers may still contribute toward closing costs, up to a maximum of 6%. The minimum down payment will increase from 3% to 3.5% under the bill (effective on or about January 1, 2009) and permitted down payment assistance may be applied to this requirement. The combined LTV (CLTV) can only exceed 100% if state and local government financing programs are utilized for down payment and closing costs.. II. Low Down Payment Options Available: Government Assistance and Valid Nonprofit Sources NOT all down payment assistance programs have been eliminated from eligibility for FHA insurance. There are a number of programs that are still eligible. For more details and eligibility on all of the following programs, go to FEDERAL: American Dream Downpayment Initiative (ADDI) STATE: Down-payment Settlement Expense Loan Program (DSELP) Closing Cost Assistance: MMP+2% MMP+3% House Keys 4 Employees Smart Keys 4 Employees Builder/Developer Matching Funds Community Partner Incentive Funds COUNTIES & LOCAL AREA ASSISTANCE: Anne Arundel Co. Mortgage Assistance Program (MAP) Closing Cost & down payment assistance Anne Arundel Co. Workforce Housing Initiative closing cost & down payment; buyer must contribute $1,000. City of Annapolis down payment and closing cost assistance for Police City of Annapolis - Homes for America Homeownership Assistance Program (HAP) up to $40,000 for down payment, closing costs and mortgage interestrate reduction to buyers in the City of Annapolis with incomes below 80% of the median income Baltimore County Settlement Expense Loan Program (SELP) Baltimore City Buying Into Baltimore Fairs down payment & closing costs for $3,000 Next event is September 13th, at City College for all properties east of Charles Street Baltimore City Employee Homeownership Program Baltimore City Live Near Your Work Program Calvert Loan Program Cecil Homeownership Initiative Programs (CHIP) Cecil County Settlement Expense Loan Program

3 Cecil County Individual Development Account (IDA) Charles County Settlement Expense Loan Program Comprehensive Housing Assistance, Inc. Enterprise Homes Episcopal Housing Corporation Frederick City Sold on Frederick II up to $15,000 for down payment and closing cost assistance for households at or blow 80% of median income Frederick County Homeownership Program Low interest subsidized mortgages and closing costs to income-eligible households to purchase homes in rural Frederick County Frederick Co. Impact Fee Deferral Program impact fees on new construction may be deferred for households at or below 70% of area median income. Frederick County Association of REALTORS (FCAR) deferred loan up to $5,000 for down payment and closing costs income restrictions apply. Garrett County First Time Homebuyer Program downpayment and closing cost assistance City of Hagerstown $500 Down Home Purchase Program Low & Moderate Income Hagerstown Home Store Closing Cost Assistance must use CDA-MMP mortgage program City of Hagerstown Downtown Residency Initiative - $1500 for downpayment and closing costs Harford County Police and Teachers Homeownership Program (PATH) Harford County Settlement Expense Loan Program Howard County Settlement Downpayment Loan Program Being revamped; 80% of County median income based on family size Montgomery County Housing Opportunities Commission Purchase Assistance Program Montgomery County Revolving Closing Cost Assistance Loan Montgomery County Settlement Expense Loan program Prince George s County Downpayment Closing Cost Assistance program Salisbury Neighborhood Housing Services/NHS (Baltimore, Hagerstown & Salisbury) Ultra-Light closing cost and down payment assistance up to $7,000 at 7% interest for 7 years. St. Ambrose Housing Aid Center Other programs offered through local charities or faith-based organizations III. Alternative Financing: Low and No Down Payment Programs ACORN/Bank of America BB&T Community Homeownership Incentive program (CHIP) Buyers must contribute $500 of their own funds; LTV from 97% -100% up to $417,000 with no mortgage insurance! Incomes restricted to 80% of median for the designated area. Chase DreaMaker Opportunity Program Employer-Assisted Housing Federal Home Loan Bank Freddie Mac Home Possible First Time Homebuyer Program

4 Fannie Mae My Community Loan Program M&T Get Started National Homebuyers Fund, Inc. ACCESS Program PNC Bank Affordable Mortgage Rural Housing Loan/USDA Direct Loan at 100% LTV with no mortgage insurance USAA - Movers Advantage Up to $1,550 when you buy or sell your home (using a USAA Movers Advantage preferred real estate agent) IV. Ongoing Negotiations with Nehemiah and AmeriDream NAR expects to negotiate with AmeriDream and Nehemiah, consistent with the intentions of the House Financial Services Committee, about a restructured business model, with no direct link between the buyer and seller, which would allow their assistance to qualify and still mitigate risk to the FHA fund. Chair Barney Frank (D-MA) and Subcommittee Chair Maxine Waters (D-CA) want to find a way to save these programs, and establish a business model that will provide down payment assistance to help homeowners without putting them at risk for foreclosure. On July 31 st, Congress introduced bipartisan legislation, H.R that would reauthorize and reform charitable down payment assistance. The legislation, sponsored by U.S. Reps. Al Green (D-TX), Gary Miller (R-CA), Maxine Waters (D-CA), and Christopher Shays (R-CT) would re-authorize and reform non-profit down payment assistance and secure it as an allowable source for FHA borrowers. The bill seeks to ensure that providers of the down payment assistance operate in a transparent manner to guard against conflicts of interest. It also includes language to ensure that FHA maintains its financial stability by permanently authorizing the Secretary to assess higher premiums to higher risk borrowers. V. FAQ s 1. Will pre-purchase counseling or Homebuyer education classes be required for all FHA loans? No. 2. Does the removal of DPAs imply that any other seller concessions on the settlement sheet are prohibited? For example, if a seller were to give back an allowance for new carpeting or painting or minor repairs, is that amount be disallowed under the new FHA rules? No. The legislation only prohibits seller-funded down payment assistance, or assistance from someone who financially benefits from the transaction. The seller may still contribute to closing costs, up to 6%. Other forms of down payment assistance - such as from family members, government-sponsored programs, employers or gifts from non-profits - are still permitted. 3. Does the prohibition of seller-funded down payment assistance apply to VA loans? No

5 4. Is Genesis/Grant America Program exempted from the regulation because of prior legal proceedings concerning HUD s rules in ? No. Several similarly operated government grant programs were introduced in response to the IRS Revenue Ruling in May Their governmental status made them exempt from that IRS Ruling, but they are still affected by the new HUD Regulation, including the Grant America Program, which had been available to all homebuyers in all fifty states.