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FHA + Nehemiah: A Path to 103% Financing

With the rapid demise of 100% financing, first-time home buyers are finding it increasingly difficult to purchase homes, even as prices become more tempting. Yet there is one solution often overlooked by borrowers and lenders alike. It is the Nehemiah program, and when used in conjunction with a normal FHA loan, magical things happen.

What is Nehemiah?

The Nehemiah Corporation is “a community development corporation specializing in homeownership, affordable housing and community development.” The Nehemiah Program, founded in 1997, is the largest privately funded down payment assistance program (DPA) in the country and has helped a quarter of a million families buy homes.

How Does the Nehemiah Program Work?

Nehemiah provides gift funds for the down payment and closing costs to qualified home buyers who use an eligible loan program. Here’s the key: the seller must contribute an amount equal to the gift (up to 6% of the sales price) plus a small processing fee to Nehemiah. Nehemiah in turn provides a gift to the buyer. The funds are not a loan, there are no payments due, there is no “recapture”, and they never have to be repaid.

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Posted by Marc Brinitzer on 02/05/2008 11:58 PM

Comments (20)

fha, nehemiah, mortgage, 100 financing, 1st time buyer

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20 Comments on FHA + Nehemiah: A Path to 103% Financing

FEB

2008

I heard about something like this. i think there is a local Church that was offering something similar, and they were talking about 10%.

Is this the same thing or there are several programs like that?

Hello Jason here from Brainerd, MN

Great Program! I have a other program in additon that works really good in Minnesota for FTHB and other people with less than perfect credit. It could work for others like us.

Rural Development- USDA

Purchase price which can include 6% seller concessions and 2% funding fee for USDA.

Appraisal has to support all value.

True no money down and no PMI as long as value supports.

Last one I did last week was at 6%.

Nice plan for the borrowers but income limits and other guidelines still apply.

Take care & keep originating. - Jason

Marc, This is a great program! My loan officers have been telling all of us about this program and I am working with some buyers right now who will be using it.

Marc, thank you for sharing this info with us. I will find the loan officer or lender how can help my clients. have a successful 2008. lupe

Thanks for your comments everyone. Jon, there have been a number of these programs around, but Nehemiah has been the largest and most consistent.
Good luck everyone!

Having "been there, done that" why doesn't it work locally? Perhaps I am uninformed?

Oh my goodness, there's a program from the past. I haven't processed one of those in a few years and almost forgot about it. It may make a comeback with the seconds rapidly going away. They are great loans for the right borrower!

Vicki, I'm sure Danville doesn't have many properties where FHA loans could be utilized. And mMaybe you're holding value better as well so that seller's are not as amenable to coughing up the 6%. Or is it something else?

APR

2008

I have definitely seen this program far more recently. I actually thought it was "new" and didnt realize it had been around for a while. It does seem to open more doors especially if value does not create any problems.

MAY

2008

I have done several of these deals and they work very easy. Nehemiah couldn't be easier to use and to work with. Never had a problem and the money is always there.

John Thomas - Certified Mortgage Planner

With this current Mortgage Market we must learn to adapt, thanks for the tip.......

MAY

2008

How is this program an advantage to the seller when they have to pay 6% of the list price to the program, plus fees, in addition to the listing agents 6-7% commission? With decling real estate prices, the profit margin is already reduced, and this program just doesn't appear to favor the seller.

MAY

2008

Cindy, It certainly does cost the seller, and if that seller has plenty of buyers who don't need the extra incentive, then this wouldn't necessarily be the best strategy.

But, if a seller must lower their price (think net proceeds) anyway to get the home sold, offering to participate in Nehemiah will open the doors to many buyers who could otherwise not consider the home even with the priced lowered a bit. The issue for many buyers remains "cash". Price reductions don't solve that problem; Nehemiah does.

Nehemiah is also very streamlined now. You apply on line and funds are wired to escrow. No nasty paperwork or long waits. The only problem here is Sacramento is that the lower end of our market has heated up and Nehemiah buyers are at a competitive disadvantage when asking for 6% from the seller. Multiple offers and competitive bidding require a different solution.

MAY

2008

What are the fees associates with a Seller 65 gift?

I just had an offer on a listing and the buyer wants us to participate in the Nehemiah Program. So the seller must contribute at least 6% right? What and how much are the other fees the seller has to pay? I don't think it would as big a deal if they hadn't low-balled the offer by $99,000!!! We haven't had any other offers but that's ridiculous.

It is the way to go in this credit challenged market!

Laura and Lisa,

The Seller can contribute up to 6% to Nehemiah. The only requirement nehemiah has is that this be used with a program like FHA that will allow a gift for the down payment from a non-profit. You can register on line and Nehemiah wires funds to escrow at the close. The seller pays a $500 fee in addition to the Nehemiah contribution, and that fee is debited at the close.

Lisa, I always tell my borrowers that they can't ask for a big price discount AND ask for 6% as well; at least not unless the house is really overpriced or there are no buyers to be found. In fact, here in Sacramento, Nehemiah is no longer a great strategy. There are now multiple offers on everything under $300k, and asking for 6% from the seller will simply guarantee that your offer gets ignored.

JUN

2008

Is there any tax benefit to the Seller? What if the home does not appraise? Can't you do this without the program? - What is the benefit in using Nehemiah? Have lots of ?'s ... ;O)

The contribution is tax deductible, because the assistance program to work the grant must come from an IRS approved non profit. I tell everyone, though, to check with their tax advisers before relying on my word. Nehemiah has been doing this for many years. Several other companies have followed the example.

FHA has tried to shut them down because it is in all practicality, the seller paying the down payment. Congress, industry lobbyist, and other have come out in support of the approach. And the courts have upheld the DPA programs.

They are likely here to stay. Another strong company is Ameridream. Quick Down is also good to work with. There are others, but some are being weeded out because their particular non profit qualifications are questionable.

Richard

APR

Beware, the seller's contribution to the downpayment assistance program is almost certainly NOT tax deductible. The IRS recently ruled on this matter (PLR 200901034 01/02/2009) and the DPA provider actually lost their tax-exempt status as a result. The seller contribution is not considered a gift because they receive economic benefit - the ability to sell their home at a higher price. Further, the gift does not proceed from a "detached and disinterested generosity." Finally, deducting the gift could be considered a "circular tax avoidance scheme."

Marcus Piquet, Roorda, Piquet & Bessee, Inc. CPAs

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