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    Cash Investment Requirement – Prohibition Of Seller-Funded Down Payment Assistance

    One of the many FHA provisions to H.R. 3221, the Housing and Economic Recovery Act of 2008 bill is the prohibition of Seller Funded Down Payment Assistance.  This means that FHA will not recognize and/or accept seller donations for the purpose of down payments.


    SEC. 2113. CASH INVESTMENT REQUIREMENT AND PROHIBITION OF SELLER-FUNDED DOWN PAYMENT ASSISTANCE.

    Paragraph (9) of section 203(b) of the National Housing Act (12 U.S.C. 1709(b)(9)) is amended to read as follows:

    (9) CASH INVESTMENT REQUIREMENT-

    `(A) IN GENERAL- A mortgage insured under this section shall be executed by a mortgagor who shall have paid, in cash or its equivalent, on account of the property an amount equal to not less than 3.5 percent of the appraised value of the property or such larger amount as the Secretary may determine.

    `(B) FAMILY MEMBERS- For purposes of this paragraph, the Secretary shall consider as cash or its equivalent any amounts borrowed from a family member (as such term is defined in section 201), subject only to the requirements that, in any case in which the repayment of such borrowed amounts is secured by a lien against the property, that–

    `(i) such lien shall be subordinate to the mortgage; and

    `(ii) the sum of the principal obligation of the mortgage and the obligation secured by such lien may not exceed 100 percent of the appraised value of the property plus any initial service charges, appraisal, inspection, and other fees in connection with the mortgage.

    `(C) PROHIBITED SOURCES- In no case shall the funds required by subparagraph (A) consist, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale:

    `(i) The seller or any other person or entity that financially benefits from the transaction.

    `(ii) Any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in clause (i).

    This subparagraph shall apply only to mortgages for which the mortgagee has issued credit approval for the borrower on or after October 1, 2008.’

    On July 31, a bill (H.R.6694) was introduced that would allow FHA to continue to recognize seller-funded down-payment assistance when borrowers have a FICO score of 680 or greater. Borrowers with FICO scores of between 620 and 680 would also be able to rely on seller-funded gifts of up to 3 percent of their loan principal, but would have to pay increased mortgage insurance premiums.

    For further information regarding the bills noted above visit http://thomas.loc.gov/ and enter in the Bill #H.R. 3221, for the Housing and Economic Recovery Act of 2008 or Bill #H.R.6694, the FHA Seller-Financed Downpayment Reform and Risk-Based Pricing Authorization Act of 2008 .

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