First Time Home Buyer Assistance - Can the Seller Contribute?

First time home buyer assistance programs such as the AmeriDream and Nehemiah were extremely popular over the last several years. They were popular because the down payment provided to the buyer was considered a gift that didn't have to be paid back and it covered the entire down payment amount.

Unfortunately, for whatever reason, these first time home buyer assistance programs were put to rest on October 1, 2008. Whether they will be revived is yet to be seen.

So what are the first time home buyer options? If you're a police officer, fireman or a teacher there are programs designed specifically for you such as HUD's (Dept of Housing and Urban Development) Good Neighbor Next Door program. If you are not in one of these professions you can check with your local lender to see what other programs or state grants are available.

If all of these options don't work then it's time to consider the home seller of the property you would like to buy from.

The way the rules are today, a home seller cannot give a down payment directly to the buyer. For example, if you were going to purchase my home, I cannot write a check to you for $5,000 and then have you use that money for your down payment. In the industry it's called a 'RESPA' violation. Simply put, it's illegal.

The good news is, under certain types of loans such as an FHA loan, a seller can pay up to 6% of the buyer's closing costs. When you take into consideration that an FHA loan only requires a three percent down payment it's possible, in many circumstances, that a buyer could bring very little cash to the closing, especially when the buyer receives prorated tax credits.

What closing costs can a seller pay for the buyer? As a general rule, anything on the second page of the Settlement Statement (an itemized list of debits and credits for both the buyer and seller provided at closing) in the buyers expense column can be paid for by the seller. It used to be that a seller could not pay pre-paid mortgage insurance required by FHA. However, that rule has recently changed and now sellers can pay the pre-paid mortgage insurance.

In summary, first time home buyer assistance programs are no longer under most circumstances. However, if a buyer is securing a FHA mortgage then the seller can pay up to six percent of the loan amount to pay for the buyer's closing costs without violating any rules or laws. If you are need first time home buyer assistance be sure to investigate FHA loans.