Lew Sichelman writes that HUD says "no" to seller-funded down payment assistance. Sellers are, by FHA rules, not allowed to fund the downpayment necessary for any FHA loan. DPA's are a way for buyers to roll the required 3% down payment into their mortgage by writing a contract for 3% above the agreed upon price. The seller then gifts the 3% surplus to a non-for-profit organization who, in turn, gifts that money to the buyer. It's 100% legal and it really works.
I should know. When I bought my first home in 2001 I was a hard working professional musician with outstanding credit and no money for a down payment. My lender told me and my wife at the time about AmeriDream, one of the non profits mentioned in the article. 7 years and two houses later I have been very successful in my personal real estate ventures. I never would have been able to do it without programs like these.
I hope that the FHA reconsiders their position. I am living proof that there are responsible would-be home owners out there who can and should buy a home--they just need help with the downpayment.
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