Can a Homeownership Set Aside Program grant be used for down payment?

The Federal Home Loan Bank’s (FHLB) Affordable Housing Program (AHP) Homeownership Set-Aside Grant Program is an acceptable source of down payment assistance and may be used in conjunction with FHA-insured financing. Secondary financing that creates a lien against the property is not considered a gift or grant even if it does not require regular payments or has other features forgiving the debt.  Any AHP Set-Aside funds used for the Borrower’s Minimum Required Investment (MRI) must also comply with the additional requirements set forth in Handbook 4000.1 II.A.4.d.ii or II.A.5.c.ii.   

The Lender must:  
• Verify and document the Borrower’s receipt of the grant and terms of use.  
• Verify and document that the Retention Agreement required by the FHLB is recorded against the property and results in a deed restriction, and not a second lien. The Retention Agreement must:   
- provide that the FHLB will have ultimate control over the AHP grant funds if the funds are repaid by the Borrower;   
- include language terminating the legal restrictions on conveyance if title to the property is transferred by foreclosure or Deed-In-Lieu (DIL), or assigned to the Secretary of HUD; and   
- comply with all other FHA regulations.   

For additional information see Handbook 4000.1 II.A.4.d.iii(L)(2) or II.A.5.c.iii(L)(2) available at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-04203