Down Payment Assistance Programs to be Eliminated as Part of New Housing Law


On July 30, President Bush signed the Housing and Economic Recovery Act into law.  The new bill contains wide sweeping changes for numerous housing related issues.

One of the changes of note, is the forbidding of FHA from insuring mortgages from which the down payment comes directly or indirectly form an interested third party (such as the seller).  This will lead to the elimination of all down payment assistance programs, such as the Nehemiah Program and Ameridream, which currently use a seller donation to fund a borrower’s required down payment for FHA loans. 

This change is to take effect October 1, 2008, meaning any borrower’s planning to use such a program will have until then to receive a loan commitment from a lender.

It has long been suspected that down payment assistance programs were on the chopping block and the new bill provided the forum for their demise.  However, the day after the Housing Bill became law, there was a bill introduced to reform, and therefore, save the down payment assistance programs, but it is still unclear at this point whether that proposed legislation has any chance at success. 

Under the guidelines of the new housing law, borrowers may only fund the require down payment from their own assets or gifts from immediate family members.

The following is a summary of some of the other provisions of the new law: 

  • Raises the required down payment amount for FHA to 3.5%, up from the current 3%
  • Sets the new FHA loan limit as high as $625,500 in high cost areas
  • Creates an FHA program to replace an estimated 400,000 homeowner’s troubled mortgages with fixed, government insured loans (borrowers must qualify by having a debt-to-income ratio of 31% or higher, a loan-to-value ratio of no more than 90%, and be able to prove that they can afford the loan, and lenders must agree to participate by allowing a sizable loss)
  • Provides a tax credit of up to $7500 for first time homebuyers on homes purchased between April 9, 2008 and July 1, 2009.
  • Provides both Fannie Mae and Freddie Mac with government assistance, as well as appointing the Federal Housing Finance Committee to regulate those entities
  • Provides grants to local governments to buy and refurbish foreclosed properties

5 thoughts on “Down Payment Assistance Programs to be Eliminated as Part of New Housing Law

  1. I think Downpayment Assistance Programs are a valuable asset to the industry, and one of the last few hopes to keep sales alive during this declining market. I found this website to help raise support for the new DPA reform bill.

    According to Nehemiah’s website, loans that are credit approved by October 1st can still use downpayment assistance even after the October 1st date. If HR 3221 passes, then buyers and sellers can still have this one last resource to close their deal!

  2. Hi – I stumbled on this site by mistake. I was searching in Yahoo for Accounting software that I had already purchased when I came upon your site, I have to say your page is really informative, I just love the theme, its amazing!. I don’t have the time today to totally read your entire site but I have bookmarked it and also will sign up for your RSS feed. I’ll back around in a day or two. thanks for a cool site.

  3. Pretty great article, really educational stuff. Never ever imagined I’d find the information I would like right here. I’ve been looking throughout the internet for some time now and had been starting to get disappointed. Thankfully, I came across your website and received precisely what I was hunting for.

  4. Hello there, I discovewred your site via Google whilst searching
    for a related topic, yyour site cam up, it seems
    to be good. I have bookmarked it in my google bookmarks.
    Hi there, simply became aware of your weblog through Google, and located that it’s truly informative.
    I’mgonna be careful forr brussels. I’ll appreciate if you
    continue this in future. A lot of other people can be benefited from your writing.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s