Neighborhood Gold and Buyers Fund down payment assistance programs closed for business.

The Neighborhood Gold and Buyers Fund down payment assistance programs have closed their doors as of July 3.

These programs provided buyers with down payment assistance by using money from the sellers to create a "grant" to the buyers under the guise of a non-profit organization. They did this by using a federal exemption that was interpreted to allow the payment of between 3% and 10% of the purchase price toward a buyer’s down payment and closing costs.  

The program was funded when the seller would "reimburse" the Buyer’s Fund (or Neighborhood Gold) for the grant and pay an additional 1%, or $1,000, of the purchase price, whichever was less (or 10% of the grant amount when the grant is $10,000 or more), to cover Neighborhood Gold’s expenses.

In IRS Revenue Ruling 2006-27, it was determined that this "grant" in the form of down payment assistance was not a charitable activity, so these operations have voluntarily closed their doors. The IRS is now looking to remove their nonprofit 501c3 status as well.

Another program, Grant America, is attempting to fill the gap by offering down payment assistance using its status as a government entity rather than the nonprofit program that the others used. According to their website, their program is a "government sponsored program that provides low to moderate-income homebuyers with a down payment grant to be used towards the purchase of a home".

Reading the fine print, their online brochure says that "The Penobscot Indian Nation (PIN) Fair Housing Administration is a U.S., federally recognized, Native American Government". So, they’ve created a new use for their "government entity" status to profit from the business of providing down payment assistance programs to the general public.

Fees for this program are $395, payable at the close of escrow. Requirements are that the borrower must qualify for either an FHA loan or another loan program that allows the use of gift funds to be used towards the down payment of a home. The seller must agree to participate in this program, so be prepared to educate the sellers if you attempt to use this or any other "grant" program.

Also, the seller must be willing to lower their sales price by the "grant" amount rather than building up the sales price to accomodate the cash paid to the buyer. Per Grant America’s website, "We do not condone the raising of the sales price to accomodate the seller receiving an inflated net. If we become aware of anyone knowingly inflating a home price we will cancel the transaction."

This "grant" program is only available for low to moderate-income first-time home buyers as defined by HUD. Los Angeles County currently has the following limits for moderate income status as of June 11, 2007 (applies to both new construction and existing homes):

• 1-2 people: $84,360
• 3+ people: $98,420

As a Santa Clarita homebuyer, do you really need something like this in order to afford a home? Not necessarily… It’s common practice to request up to 3% of the purchase price as a credit from the sellers to use towards closing costs, which is basically the same thing as these "grant" programs are offering.  And there’s less paperwork, less hassle, and no extra fees.

Not sure if you should use one of these programs or not? Talk to your Realtor and your lender to make sure that you qualify!

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