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U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, D. C. 20410

August 23, 1984
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 84-19
     TO: ALL APPROVED MORTGAGEES
     SUBJECT: Inducements to Purchase Offered by Sellers
 
         To promote sales, builders are offering a variety of
     inducements to potential home buyers.  One of the most recent,
     and perhaps the most innovative, is the offering of a tax free
     municipal bond that, if held until maturity, will equal or
     exceed the original purchase price of the home.
 
         The Department of Housing and Urban Development (HUD) has a
     longstanding policy that any item, given to a purchaser to
     promote a sale, will result in a reduction in the acquisition
     cost in the amount of the dollar value of the item given.  This
     could result in a reduction in the mortgage amount; however, in
     instances where the sales price of the house greatly exceeds the
     statutory mortgage limits in the area, it is quite possible that
     the gift or benefit would not affect the mortgage amount even
     though the acquisition cost is reduced.
 
         Exceptions to this principle are interest buydowns and
     installation of items such as stoves, refrigerators and items
     that customarily become part of the realty.
 
         Any thing of value, such as removable microwave ovens,
     television sets, free vacation trips, automobiles, free rent and
     now municipal bonds, will result in a reduction in acquisition
     cost to the buyer.  Our field offices will establish the value
     of the item at the time they process the application for firm
     commitment and make the appropriate adjustments.
 
                                       Sincerely,
 
                                       Maurice L. Barksdale
                                       Assistant Secretary
 
For further Information, contact the Mortgage Credit Section of the
local HUD Office.
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