Number: RS22934
Title: Treatment of Seller-Funded Downpayment Assistance in FHA-Insured Home Loans
Authors: Bruce E. Foote, Domestic Social Policy Division 
Abstract: In order to qualify for FHA-insured home loans, borrowers are required to contribute a minimum amount to the cost of purchasing the home. Under certain conditions the borrower's required contribution may be paid by others. Can the borrower's required contribution be paid by a nonprofit agency that is later reimbursed by the seller of the property? That has been the subject of regulation, litigation, and legislation. The Housing and Economic Recovery Act of 2008, P.L. 110-289, effective October 1, 2008, increases the borrower's required contribution from 3% to 3.5% and provides that the borrower's required contribution towards the purchase of an FHAinsured home may not be provided by the seller or by any third party that is being reimbursed by the seller. Enactment of the law does not mean that sellers may not provide downpayment assistance to borrowers obtaining FHA-insured home loans. It will simply mean that any contribution by the sellers will not count towards the 3.5% contribution required of the borrower. Current HUD rules provide that the seller or other interested third parties may contribute up to 6% of the property's sales price toward the buyer's costs. As introduced on July 31, 2008, H.R. 6694 would amend the new law to provide exceptions to the prohibition on seller contributions. This report will be updated as suggested by changes in law or regulation.
Pages: 6
Date: August 7, 2008