AHAA - Association for Homeowners Across America
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Policy Options for Promoting Homeownership
Through Downpayment Assistance

Many low and moderate income families seeking to own their own homes have solid credit histories and sufficient income to make the monthly payments, but are unable to come up with the necessary downpayments. In particular, the Federal Housing Administration (FHA), the federal government’s main program for assisting low and moderate income homebuyers, requires a 3.5% downpayment for mortgages it guarantees, which effectively puts homeownership beyond the reach of many prospective buyers who otherwise would meet responsible underwriting standards.

To help revive devastated housing markets, and to help otherwise qualified and credit-worthy families achieve the American dream of homeownership, the federal government has two principal policy tools available to provide critical downpayment assistance—permitting the recently enacted $8,000 first-time homebuyer tax credit to be applied toward downpayments, and reauthorizing the successful charitable downpayment assistance programs which enabled over one million low and moderate income purchasers to buy their own homes over the past decade. The Department of Housing and Urban Development recently implemented the first option relating to the tax credit by issuing Mortgagee Letter 2009-15. Congress can implement the second option by enacting H.R. 600, “The FHA Seller-Financed Downpayment Reform Act of 2009”.

Both Mortgagee Letter 2009-15 and H.R. 600 will be of critical assistance to low and moderate income families seeking to purchase their own homes. Moreover, the two policy initiatives are in no way mutually exclusive. However, as outlined below, of the two initiatives, H.R. 600 has far greater policy merits.