With numerous downpayment-assistance nonprofits facing the loss of their tax-exempt status, FHA has issued its approved lenders guidelines about which programs are still acceptable.
The Department of Housing and Urban Development requires that downpayment gifts from charitable organizations be from nonprofits that are exempt from income taxation under section 501(c)(3) of the Internal Revenue Service Code, according to HUD MORTGAGEE LETTER 2006-13 issued Thursday. Thus, for FHA to insure a single-family mortgage, lenders must ensure the entity is eligible to receive tax-deductible charitable contributions.
A downpayment gift from a charitable organization that will lose or give up its federal tax-exempt status is FHA-acceptable if the borrower has entered into a contract of sale prior to or on the date the IRS officially announces that the charitable organization's tax-exempt status is terminated.
"FHA believes this policy avoids harm to any home buyer who, in good faith, has entered into a contract of sale in anticipation of receiving a gift for the downpayment from such a charitable organization," HUD said in the letter.