Yes You Can! Tips for Enabling IDA Participants to Use FHA-Backed Mortgages

Several AFI grantees raised concerns and frustrations this week with mortgage companies that prohibit IDA participants from using their match funds for a portion of the required down payment. We addressed this issue in the June 18 edition of the IDA Resources Update, but it’s worth repeating.

IDA match funds provided by AFI grantees clearly meet Federal Housing Administration (FHA) requirements for an FHA-backed mortgage. See section 3 of the Housing and Urban Development (HUD) Handbook 4155.1REV5: “An outright gift of the cash investment is acceptable if the donor is…a charitable organization, a government agency or public entity that has a program to provide homeownership assistance to low- and moderate-income families or first-time homebuyers.” We recommend recognizing the match funds as a gift given to the participant by an AFI grantee or subgrantee.

If a mortgage company refuses to accept the IDA project match funds as part of the down payment, it may help to refer them to the HUD Handbook. Also, it may be helpful to send them a written letter explaining that, as a gift from the grantee organization, the match funds do meet FHA requirements for an FHA-backed mortgage. Be certain to reference Section 3 of the HUD Handbook.

Please contact the AFI Resource Center on 1-866-778-6037 or info@idaresources.org for further concerns.

This article originally ran in the IDAresources.org Update Newsletter on 08/13/09 and is available for archival purposes.
For updated information on asset building and the AFI program, please see www.IDAresources.org.