Down Payment Assistance Programs: May Not Further Charitable Purposes


Doesn’t a seller-funded down payment assistance program facilitate the ability of low-income individuals and families to purchase affordable housing, and therefore further the exempt purposes of a tax-exempt organization that sponsors the program?

A March 2005 report entitled An Examination of Downpayment Gift Programs Administered By Non-Profit Organizations, commissioned by the U.S. Department of Housing and Urban Development (HUD), found that seller-funded down payment assistance has led to underwriting problems and resulted in an increase in the effective cost of homeownership.  A report from November 2005 entitled Mortgage Financing:  Additional Action Needed to Manage Risks of FHA-Insured Loans with Down Payment Assistance, conducted by the U.S. Government Accountability Office (GAO), found similar results.

Moreover, because the service fees generated by property sales keep seller-funded down payment assistance organizations financially viable, these organizations may be more interested in closing sales of property to generate service fees than they are in taking responsible steps to ensure that buyers acquire safe, decent, sanitary and affordable housing.