FHA Loan Change—Seller-Funded Grant Programs

On October 1, 2007, Federal Housing Authority (FHA) issued a final ruling that Seller-Funded Grant programs, also described by HUD as seller-financed Down Payment Assistance programs, are no longer an eligible source of funds for FHA loan programs.

Under this ruling, all or a portion of down payment funds coming from a person or entity that financially benefits from the transaction, including any third party that is reimbursed directly or indirectly by the Seller is prohibited. This ruling impacts most Seller-Funded Grant programs including those provided by Indian tribes. With this change it is anticipated that some of the nonprofit entities will begin winding down operations. As a result, loans using assistance provided by these entities should be closely monitored to ensure the availability of the down payment funds for closing.

Migration Timeline