Dutch Ravesloot considers himself lucky.
The aerospace manufacturing technician has been renting a house in Gilbert and recently purchased a condominium in Mesa. The Federal Housing Administration's seller-funded down-payment assistance program helped him buy a home now and take advantage of lower home prices.
Ravesloot's mortgage is scheduled to close Sept. 26, just five days before this down-payment assistance program is eliminated as part of the federal Housing and Economic Recovery Act of 2008.
"It would be probably around $10,000 for a down payment, and that kind of money in this day and age is hard to save up," he said.
The way seller-funded down payments work is specific charities receive a "charitable" donation from a home seller and then pass the money on to a homebuyer because laws prohibit sellers from directly giving down payment assistance to buyers. The charity receives a processing fee from the seller, who then receives a tax deduction for the contribution.
In 2007, of the 54,238 homes sold in Maricopa and Pinal counties, just over 17,000 were FHA insured and therefore could have involved seller-funded down-payment assistance, according to the Arizona Regional Multiple Listing Service.
The Housing Bill was signed by President Bush on July 30, and includes numerous provisions designed to protect homeowners from foreclosure and stimulate the sluggish residential real estate market.
"As written, it is going to be an important stimulus for the housing market," said Mary Trupo, public issues director with the National Association of Realtors. "It's going to help us bottom out and start to trend upward."
Local real estate and finance professionals favor most of the bill's provisions and believe they will help the market recover and become stronger. However, many remain troubled by the provision that prohibits seller-funded down payments.
"I would still buy a house, but it would take me approximately one-and-a-half to two years to save up for the down payment," Ravesloot said. "I have a stable job and ... I'm in a position personally and financially to proceed with homeownership."
Mark Taylor, senior loan officer with American Sterling Bank, is leading a Web-based crusade to convince Congress to reverse its decision to eliminate FHA seller-funded down payments.
The Valley's real estate market relies heavily on FHA financing and seller-funded down payments, he said. Without this option, home sales will drop drastically, he said.
"If you remove down-payment assistance, you're removing four out of five buyers on the first-time homebuyer basis," Taylor said. "We're going to have a foreclosure market increase. We're going to have a property value crash."
Taylor is also concerned about the possible ripple effect of eliminating seller-funded down payments on less expensive homes because it can prevent move-up sales.
"The first-time homebuyer who is buying that $200,000 home is taking a home from someone who is trying to buy a $400,000 home," he said.
According to the National Association of Realtors, FHA loans based on seller-funded down paymentshave a "very high" default rate, roughly three times the rate on FHA loans without them in fiscal year 2007.
"Never was any of our position that the down-payment assistance program should go away in its entirety," Trupo said. "Some further finessing and regulations, and oversight may be necessary because what was happening was home prices were being inflated to make up for the seller-assisted down payment in some locations. That's where you saw more foreclosures and problems."
Tom Farley, CEO of the Arizona Association of Realtors, said there is evidence that prices were being inflated locally to cover the amount sellers were losing from down-payment assistance.
"Anytime you introduce a new cost into buying a home - impact fees, a real estate transfer tax, some new regulatory requirement - the price of the house goes up, that's the reality," he said. "Every time the price of the home goes up, you are actually knocking more people out of the market. You end up paying more for less."
Even if buyers have the money for a down payment, in many cases they may need that money to cover repairs to the home they are purchasing, said Andy Truitt, vice president of residential lending for American Mortgage Specialists.
"They might have had the funds for a down payment, but they chose to use the seller-funded down payment so they could make repairs to the property, to replace dirty, old carpet or maybe upgrade a kitchen," he said. "If you've seen any of the houses that have been foreclosed on, you wouldn't want to walk on the carpet barefoot, and you certainly wouldn't want your kids crawling around on it, even if you had it cleaned professionally."
The bill doesn't eliminate all down-payment assistance programs. Down-payment assistance from family members, government programs or charities that are not seller-funded still will be permitted.
Taylor, Truitt and others are pushing for Congress to pass H.R. 6694, which they say would eliminate the ban on seller-funded down payments.
In the meantime, many in the real estate community hope the bill will help stimulate the housing market, which is plagued by falling home prices, sluggish sales and mounting foreclosures.
"Where I think it's really going to help are those individuals who are getting close to losing their home and can refinance using a government-backed mortgage," Farley said. "And if you can keep those folks in their homes, not only is it good for that individual or family, but it also would be good for the market."
Nationally, an estimated 400,000 homeowners who are struggling should be able to refinance into safer, more affordable FHA loans, Trupo said.
"We're already seeing a huge increase in the number of FHA loans," she said.
The tax credit of up to $7,500 should spur home buying by providing more incentive for potential first-time homebuyers who have been apprehensive about the market, Trupo said.
The new property tax deduction should help more homeowners afford their mortgages, Farley said.
"The federal government was really trying to figure out how they could release pressure on families and individuals who are having a tough time in this current economy and keep them in their homes," he said.