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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