You can still get a house with no money down!

With the collapse of the subprime market, no-down-payment loans pretty much disappeared. But there’s always a way, it seems. The Federal Housing Administration (FHA) insures mortgages with as little as 3% down. You pay extra on your interest rate, and if you default, the FHA pays off the loan balance to the bank. Three percent is not a huge amount of equity, but evidence indicates that even that small amount reduces the default rate on these loans.

There are, of course, illegal ways to avoid the down payment. Commonly the seller inflates the price of the property by 5% or so above the mortgage amount, and does not collect the extra from the seller. The FHA is on to this and it is harder to do without getting caught.

So, some clever schemers have come up with a legal way to do something similar. They get a charity to donate the 3% down to the buyer, and donate that amount to the charity. This is called “down payment assistance.”

Nehemiah Corporation of America is the leading provider of down payment assistance and they say they have 95,000 customers (or sellers), both individuals and companies, that have used their services to provide no down payments loans to home buyers.

The FHA is worried that these loans will have a much higher default rate than loans with real down payments and they and some Congressman are trying to make this program illegal. But some powerful Congressman, including Rep. Barney Frank, Chair of House Finance Committee, favor it, and it appears that it may be modified but not eliminated.

However, should you want to take advantage of this program, might be prudent not to wait.

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