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The Nehemiah Program and FHA Loans

How to Use the Nehemiah Down Payment Assistance Program

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Nehemiah and FHA Helps Home Buyers

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Note: As of October 1, 2008, Nehemiah is no longer available, thanks to the Bush Administration. Will it be revived by President Obama? We can have hope. Here is an overview of the way the program used to work before it was canned.

The Nehemiah Program is like money falling from the skies for home buyers. You don't need to be a first-time home buyer to use the Nehemiah Program, either, but there are a few restrictions. For instance, you cannot buy a vacation home with the Nehemiah Program.

Qualifying for Nehemiah is relatively easy. Home buyers who are approved for an FHA loan, for example, will most likely qualify for the Nehemiah Program.

What Does the Nehemiah Program Do for Home Buyers?

Nehemiah is a nonprofit organization that was formed in 1994 to help home buyers buy a home. When used in conjunction with an FHA loan, it lets buyers purchase a home, even if buyers don't have any money. Nehemiah is the largest private down payment assistance program in the country.

How the Nehemiah Program Works

It's a simple concept. The seller gives up to 6% of the purchase price to the Nehemiah Corporation, plus a $599 fee. Nehemiah then gives the donation to the buyer to pay for the down payment and / or buyer's closing costs. Because it is a gift, the buyer doesn't need to pay it back.

Elements of the Nehemiah Program

Nehemiah can supplement a conventional loan or an FHA loan, but it used most often with FHA loans because of FHA's low down payment requirements. The elements are as follows:

  • Buyers can choose a home located anywhere in the country.

  • Buyers must agree to occupy the home.

  • The property must be one to four units.

  • There are no income limitations.

  • Buyers must qualify under conventional or FHA guidelines.

  • Sellers can credit any sum up to 6%, which can include 2.85% for FHA's minimum down payment requirement, with the balance toward closing costs.

  • FHA loans are available only to the original, not revised, FHA loan limits. There is a limit on the maximum loan amount.

  • Buyers do not need to be a first-time home buyer.

  • Nehemiah can be used to buy any age of home, even brand new homes.

Negotiating a Nehemiah Program Home Transaction

Six-percent of the sales price is a lot of money for a seller to give a buyer. On a $200,000 home, that sum is $12,000. You might wonder: Why would a seller agree to participate in the Nehemiah Program?

To answer that question, let's look at the variables. There are two basic ways that Nehemiah works. Either the 6% is added to the sales price or it is deducted from the sales price. In some cases, to get 6% back from the seller on a $200,000 home, the buyer might need to pay $212,277. As long as the home will appraise for the higher value, this scenario will work for you.

Some critics say this method forces the buyer to finance the down payment and closing costs by rolling those fees into the sales price. Others say paying a higher sales price is not necessarily bad for the buyer because eventually appreciation will give the buyer equity.

The second method is to find a truly motivated seller who will agree to give the money to Nehemiah out of the sales price. Sometimes, buyers can negotiate an offer resulting in a sales price that is lower than the list price.

Finding Sellers Who Will Participate in Nehemiah Programs

Some builders advertise that they will cooperate with the Nehemiah Program. In those cases, buyers who come up with their own down payments and closing costs typically pay less for the home than a buyer who relies on Nehemiah.

It might be easier for a home buyer to approach sellers who really need to sell or for some reason, their home isn't selling. Consider making purchase offers to those sellers who:

  • Are relocating for a new job.

  • Bought another home and are now making double mortgage payments.

  • Getting divorced and selling, and cannot move on with their lives until the home sells.

  • Not selling because the home is overpriced or needs work.

  • Competing with a lot of similar listings for a buyer's attention.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

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