HUD's New Rules for Down Payment Assistance

Effective April 18, 2019, the Department of Housing and Urban Development (HUD) enacted rule changes for down payment assistance on Federal Housing Administration-backed mortgages.

Previously, qualifying FHA borrowers needed a minimum down payment of 3.5 percent of the home's purchase price, and could receive contributions from employers, family, and "governmental entities". In cases of assistance from governmental entities, HUD now requires more documentation to confirm the extent and nature of the contributions, HousingWire reports.

In a mortgagee letter, “Downpayment Assistance and Operating in a Governmental Capacity,” FHA writes, “It has come to FHA’s attention that certain Governmental Entities may be acting beyond the scope of any inherent or granted governmental authority in providing funds towards the Borrower’s MRI in circumstances that would violate Handbook 4000.1, the National Housing Act, and is contrary to established law."

In order to remedy this situation, the FHA is now stating that its current documentation requirements need to be “clarified to provide Mortgagees with specific guidance regarding documentation that will give greater assurances that the standards for providing the MRI have been satisfied by the Governmental Entity.”

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