HUD Prohibits Certain Downpayment Assistance

The United States Department of Housing and Urban Development (“HUD”) published a final rule on Standards for Mortgagor’s Investment in Mortgaged Property on October 1, 2007. Beginning October 31, 2007, a prohibited source of downpayment assistant will be any payment that consists, in whole or in part. of funds provided to the Buyer by the Seller or any other institution that financially benefits from the transaction.

The National Association of Realtors® supported this rule and submitted to testimony on July 17, 2007. This rule will prohibit certain non-profits from collecting contributions from property Sellers, taking a fee, and then giving the remaining money to Buyers to purchase the property. NAR’s position was that these “seller-funded” downpayment programs were resulting in home price inflation and increased the risk for mortgage payment delinquency and foreclores.

NAR does continue to supports many other downpayment assistance programs to help Buyers purchase a home, including assistance from family members, the Buyer’s employer, state or local governments, and charitable organizations that do not involve a party with a financial interest in the transaction.