On October 1st, a program that has allowed hundreds of thousands (if not millions) of Americans to buy homes will officially be outlawed.  It’s the FHA/down payment assistance combination that has allowed borrowers to buy homes without any money down.  It’s been a particularly critical program after 100% lender financing dried up.

Earlier this year, I posted about getting into a home with no money down by combining an FHA loan with down payment assistance from a provider like Nehemiah or AmeriDream.  Yet the FHA says that default rates on its loans where borrowers used down payment assistance providers were far higher than default rates on loans where borrowers put their own money down.

So when Congress enacted the Housing and Economic Recovery Act this summer, it included as a provision that the FHA would no longer allow borrowers to get down payments from seller’s assistance or though any third party (like down payment assistance providers).  Money for a down payment on an FHA loan can come from a blood relative (mom, dad, brother, sister, grandparent, etc.) or from the borrower’s own pocket -- no where else.

But as controversy has erupted over the provision, Congress has been discussing a repeal of the ban on FHA/down payment assistance combinations -- very good news according to many, including my good friend and lender partner Matt Maret, who said:

“I am not quite sure how repealing down payment assistance (DPA)/FHA programs constitutes a housing recovery. Frankly, we are taking away the one thing that is keeping this market moving.

The last numbers that I heard are frightening: of the approximately 6,000 transactions we have currently pending in Maricopa County, 75% of them are FHA and 75% of those have DPA. That equates to 3,375 transactions that potentially go away after October 1st.

Recovery? I do not think so!  The shining light here is that both Presidential candidates have said that they will reinstate some form of DPA. What that looks like and when are the big questions.”

What’s your opinion of the value of down payment assistance combined with FHA loans?  Have you used a DPA program to buy a home?  Do you support Congress’ efforts to reinstate DPA programs in FHA loans?