This weekend is the virtual end of Nehemiah and seller-funded down payment assistance programs. Although the formal deadline is October 1, 2008, lenders will stop taking new applications and lock for this program in the next week or so. Unless you have a property under contract this weekend, chances are slim that you’ll be able to get your down payment help from the seller.

So what’s a buyer to do? There are a few options that remain (I’ll be writing about VA and CalVET loans in the coming weeks). Today however, I want to address a program that has just been expanded to include Sacramento County. It is run by the California Housing Finance Agency (CalHFA), the state’s provider of affordable loans for first-time home buyers.

The Community Stabilization Home Loan Program began in July of this year and was funded by $200 mil in tax exempt bonds. It provides 100% financing at low 30 year fixed rates to qualified first-time buyers who select a property from a list of foreclosed homes. The list includes properties owned by lenders who have agreed to partner with CalHFA to offer reduced prices. Here are some pertinent facts:

• You must be a first-time buyer (have not owned a home in the last three years)
• You must live in the property (you cannot convert this to a rental for as long as it remains encumbered by the CalFHA loan)
• Can be combined with California Homebuyer’s Downpayment Assistant Program (CHDAP) for a total 103% financing
• Sacramento sales price limits: $580,000
• Sacramento income limits: 2 person family, $85,200 / 3+ persons, $99,400
• Home buyer education required
• Select a property from the approved list (scroll down until you see Sacramento County)
• 30 yr fixed rate loan, currently at 5.5%

Want to see if you qualify? Give me a call or send an email if you live in California.

The recent housing bill eliminates Nehemiah and other seller-funded down payment assistance programs. Although legislative efforts are under way to restore these programs, these efforts won’t bear fruit before the October 1st deadline set by the recent bill.

Lenders are interpreting the deadline in different ways. Most have already begun closing the door on new applications. That’s tough on buyers who have spent months looking for a home and counting on Nehemiah. But even Wells Fargo, who until recently boasted that it would continue take Nehemiah deals right through September, just announced that you must be locked by September 2nd. And of course rate locks are tied to property addresses, so unless you’re under Contract in the next week, you’re going to need to find that 3% down payment someplace else.

FHA Down Payment Increases

Speaking of needing to find down payment money, the recent housing bill also increases the FHA down payment from less than 3% to 3.5%. That doesn’t seem like a lot, unless you were planning on getting the 3% from Nehemiah. That one-two punch is going to put a lot of buyers back into the saving mode or looking for gifts from family members.

The recent Housing bill sailed through Congress and across the President’s desk, easily gathering the required ink along the way.   Although complicated enough that some provisions won’t take effect until next year, it appears that the Nehemiah, a popular seller-funded down payment assistance program (SFDAP),  and it’s clones are headed to the freezer on October 1, 2008.

The problem with these types of programs lies in the phrase “seller-funded”.   It’s one thing to qualify for a government agency grant or silent 2nd loan, because those are designed to help low income folks who couldn’t save up the required down payment.   It’s another thing for a program to be funded by the seller and to require only that the buyer’s first loan allow for a gift from a non-profit.

Don’t get me wrong; I’m not against Nehemiah.  I have used the program a lot.  But as the lending industry continues to look for scapegoats in the current crisis, it will continue to cite higher default rates on these programs and deter investors from buying these loans in the secondary market.

I just received an email this morning from an underwriter at a prominent bank that was, until just now, allowing a 6% Nehemiah gift plus 6% in seller concessions.  Not any more.  She says the bank is going to get “really restrictive” on SFDAPs in the next few days, regardless of FHA’s policy.  “Investors don’t like these,” she says.   The bank will begin treating SFDAPs as part of the total seller concession and subjecting that to the normal limitations.