hypothetical question

[SanDiegoEngineer]

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@Anonymous wrote:

Wow! Well I did it in 1998, and I had no idea it wasn't ok to do. None of the lawyers stopped it, so maybe they figured it covered closing costs and was a wash? Frankly, I remember being surprised it could be that easy, but I was very naive, and had small children counting on me to put a roof over their heads, so I didn't think to question it.

This time, though, I knew it was fishy, just wasn't sure why.

Thanks for the detailed answers!

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It used to be sort of legal to do in FHA loans - up until last year there were several organizations that would "donate" you the funds, subject to the seller repaying them after closing.  This was a sneaky loophole that introduced the illusion of an arms length transaction by taking advantage of the FHA rules allowing non-profits to gift funds to the buyer to purchase the home, and employed a "non-profit" middleman to route the funds from the seller to the buyer, however, this loophole was closed last year.

Non government sponsored loans it's probably still legal to do (though I doubt you'd find any banks willing to make these kind of loans).

Message Edited by SanDiegoEngineer on 05-05-2009 12:46 PM

[MattH]

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@SanDiegoEngineer wrote:

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@Anonymous wrote:

Wow! Well I did it in 1998, and I had no idea it wasn't ok to do. None of the lawyers stopped it, so maybe they figured it covered closing costs and was a wash? Frankly, I remember being surprised it could be that easy, but I was very naive, and had small children counting on me to put a roof over their heads, so I didn't think to question it.

This time, though, I knew it was fishy, just wasn't sure why.

Thanks for the detailed answers!

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It used to be sort of legal to do in FHA loans - up until last year there were several organizations that would "donate" you the funds, subject to the seller repaying them after closing.  This was a sneaky loophole that introduced the illusion of an arms length transaction by taking advantage of the FHA rules allowing non-profits to gift funds to the buyer to purchase the home, and employed a "non-profit" middleman to route the funds from the seller to the buyer, however, this loophole was closed last year.

Non government sponsored loans it's probably still legal to do (though I doubt you'd find any banks willing to make these kind of loans).

Message Edited by SanDiegoEngineer on 05-05-2009 12:46 PM

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 Yes, your history is accurate. The reason Congress closed the legal loophole last year is that mortgages with DPA through these outfits had much higher default rates.  These outfits are lobbying very hard to get the loophole reinstated, and some who genuinely want to help people get affordable housing have become their fellow travelers.

But legitimate down payment assistance programs, which can work well if properly administered, get their funds from sources other than the seller.