Nehemiah Down Payment Prevention Program
A lot of people have heard of Nehemiah, and think that it’s a down payment assistance program. I’ve come to view it more as a down payment prevention program. The beauty of Nehemiah is that you can save $200,000 on your home, because after one of my hard working agents has invested a couple of hundred dollars in gas money on you, you won’t open escrow, so then you won’t close escrow or have a mortgage to pay. Total cost to you: zero.
Nehemiah’s one of those ideas that looks great on paper, like web site banner ads or the Republican Party or showing your boobs off at Mardis Gras.
Here’s how it works. You don’t have a down payment, so somebody (you or the seller) pays a $499 fee to Nehemiah corporation. Then the seller pays your down payment. In return for the fee, Nehemiah in effect launders the seller’s money by turning it into private funds for the Nehemiah Corporation. Some other private funds then come out of the Nehemiah Corporation to become your down payment.
Well, John, What’s Wrong With That?
Good question. I’m glad I wrote it for you. I’ll tell you what’s wrong with that.
Most importantly, what’s wrong with Nehemiah is that although the funds the seller’s putting in to Nehemiah may equal the funds that are applied to your down payment (not counting that $499 someone’s paying to make this work), they’re not the same funds. Depending on gosh-knows-what, Nehemiah funds may or may not be available when it comes time to close.
So a Nehemiah transaction is one of those “maybe it’ll work” transactions. In that respect it’s like an offer that’s contingent on the sale of someone’s house.
Now there’s nothing wrong with a “maybe it’ll work” transaction in principle. We have a seller or two who probably wouldn’t mind a “maybe it’ll work” transaction, because they’re competing with bank foreclosures.
But now let’s look at a bank that owns a foreclosure. They want to get the home off the books, and they know that if they list it at 20% or more below comparable sales, they’ll have more offers than they can use. These will be real offers, with less than 100% financing, where the buyer’s preapproved and there’s an excellent chance of closing. These aren’t “maybe it’ll work” offers.
Keep in mind that the bank owns this house to begin with because they loaned money to a “maybe-it’ll work” borrower.
Now along comes Norbert Nehemiah-Buyer, who has his heart set on the cheapest house on the far left of the bell curve, and asks the seller to accept a maybe-it’ll-work Nehemiah offer.
Thank you, Nehemiah Corporation. Another down payment has successfully been prevented!
The Moral Of the Story?
This probably isn’t a moral some people will like, but here’s the moral. Bring a down payment. It doesn’t have to be huge. FHA offers excellent programs with 3% down payments, and the 3% can be gifted.
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March 25th, 2008 at 6:29 pm
Thanks so much for this. I currently have some sellers who’s buyer asked them to go for this. I’ll pass this along.
March 27th, 2008 at 10:19 pm
What a timely post for me. I was just referred a buyer under this program. I am planning to call my lender and get her thoughts on this program. My thoughts- can I really get a seller to contribute to the buyers downpayment and closing costs? I had never heard of the Nehemiah program until I receive this referral.
March 27th, 2008 at 10:39 pm
Obviously I have some pretty strong personal prejudices against this program — largely because I have a lot of buyers trying to use it to compete on homes where other buyers are coming in with at least a little cash. Seems like I struck a cord there though!
May 1st, 2008 at 7:31 pm
My experience using this program has been far different from what the writer of this article describes. Years ago I had used this program successfully. In today’s environment I have rediscovered this program and FHA and am once again using both very successfully. This has been particularly useful with bank-owned properties.
The Nehemiah Program has been used successfully by over 250,000 homebuyers (and sellers) over the past ten years. They have done this without using any tax-payer dollars. This nonprofit program is headquartered right here in Sacramento. The notion of this faith-based program (which was founded by a local Baptist Church) “laundering” money is hardly plausible. The funds from the home seller of one transaction are not received by the nonprofit until 5-6 days following closing. Those funds, once received, are then used to help future homebuyers.
As far as I am concerned, this is one of Sacramento’s best kept real estate secrets.
May 1st, 2008 at 10:52 pm
Well, I agree with you that it’s faith based, but that to me constitutes the main argument against it. The buyer has to have faith that Nehemiah would have funds to close (a fact that my own lender could not verify), and they have to ask the seller to have the same faith that these funds will in fact be available. Meantime the buyers using these programs always seem to have faith that they can own a home asking the seller for six per cent in total closing costs plus a $499 Nehemiah fee on their 10% lowball offer on the REO that’s already 20% below market when there are people lining up down the street to put reality based offers on the same property.
As for laundering, of course that’s what it is. FHA is a 97% loan to value program — if the seller pays the 3%, then it becomes a 100% loan to value program. FHA is government guaranteed, meaning the Baptists have just changed the risk profile of a loan that’s underwritten by my tax dollars.
As for the 250,000 home buyers who’ve used this program, I suppose one might be naively impressed with that. But no one tells nor knows how many people have tried to use it and had their offers fall apart because they’re competing with real offers — and how this failure rate compares to FHA, conventional loans with down payments, etc. If 250,000 pray and got their cancer cured, that’s great, too. I’m happy for them. I for one would take the reality based approach and consult a physician, because the Baptists never tell you how many people prayed and died anyway.
May 21st, 2008 at 10:01 pm
In a perfect world, a buyer would always have their own downpayment. Here is reality, they don’t. Banks may have plenty of offers for buyers willing to buy homes at an REO price, but would they still have those offers if it weren’t for these non-profits turning these offers into closed purchases? I don’t have any friends, much less buyers with 3% burning a whole in their savings account. I have worked with Nehemiah for years, and there has NEVER been any circumstance where they didn’t have funds for a closing. How can they possibly invest millions of dollars in community redevelopment, nationwide, if they were worried about having the 3% downpayment funds available for your particular closing? This is another clear cut case of mis-information. People should really do their homework before making public claims of how corporations run their business. Nehemiah makes the transaction possible, not fall apart. And if the government is really that concerned with their insured loans, or default rates, why did they double their insurable loan limits? For the last 10 years, Nehemiah has turned homebuyers into homeowners and that is a plain and simple fact. There is no evidence to suggest that any transaction has ever “fallen apart,” specifically because of using the Nehemiah Program. That is a misguided statment meant to scare people out of learning how the program can help them. Read their website, then judge for yourself if it does more harm than good.
May 22nd, 2008 at 8:53 am
How can they invest millions and not have money available? Hmmm, oh that’s right, every investment everybody ever makes pays off — I forgot. Ask anyone who bought one those homes that was sure to appreciate some more in 2006 based on what it had been doing in 2004 and 2005 — we don’t need no stinking cash flow.
The truth is I asked my lender if she could assure me that funds would be available to close and she told me she couldn’t. I’m glad you had success with them. I didn’t. I had offer after offer not even get a hearing, because the same buyers who didn’t want to take 3% out of their IRAs because that’s inconvenient to them also didn’t feel the need to offer anything more than 80-95% of list on a property that was already discounted 20%. So granted, one might have a point that what I’m really objecting to here are the 100% LTV lookie-loos who think they can win from a negotiating position that’s completely untroubled by considerations of price and terms.
The government doubled their insurable loan limits, hello, because the price of homes went up.
Are my statements misguided? Oh, no doubt. Do I mean to scare people out of learning how the program can help them? No, I mean to have people ask themselves whether they can afford a home and whether they’re sincere enough about owning a home (not renting it from the bank) to risk 3% of their IRA or mom’s money on it. If they’re not, then maybe they shouldn’t be pushed into investing the two nickels they can’t rub together into an appraisal fee just because I can make 3% creating America’s next future short sale.