The Guru Is In

Earning Homeownership and the Ghost of Nehemiah

By David A. Smith
September 8, 2025 10 min read

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The down payment; ay, there’s the rub.

Many aspirational homebuyers believe they can leap onto that lowest rung of the ownership ladder, but find they cannot get over the curbstone of the pesky down payment.

Now, a fast-growing company out of Salt Lake City, Arrive Home, is offering an Earned Equity Program (EEP) that is effectively a rent-to-own model wrapped around Federal Housing Administration (FHA) financing. It’s highly innovative, it creates a pathway to homeownership for households that would otherwise be locked out, and it’s growing fast.

It also follows three decades of previous pioneers seeking the same objective, only for their programs to come a cropper and disappear in ignominy. Is this time different?

The case for getting aspirational households into homeownership is compelling. If only people could get over the curbstone and be homeowners – find a house they desire, move into it, make stable monthly payments – then their home-improvement motivations, economic stability, and rising property values will lift these worthy households out of rent-paying poverty and into the American Dream.

It’s a noble vision with an eight-decade history starting in 1944. It’s seldom worked.

Veterans have always been deemed as among the most worthy households for America to support, and in the GI Bill, Congress authorized the Veterans Administration (VA) to make long-term fixed-rate low-interest loans with no down payment. That program worked spectacularly – more than two million returning GI’s took advantage – and though the original GI Bill itself ended in 1956, VA still offers no-down-payment loans with, as far as I can tell, excellent repayment rates.

Since then, despite seven decades of trying, no other Federal “low-down/no-down” program has replicated VA’s success in the broader marketplace:

• The Section 235 homeownership program (one percent loans, less than three percent down) was plagued by clandestine sale price inflation exploiting naïve homebuyers, eventually collapsing in defaults and FHA losses, and was closed down in 1989.

• In the early 2000s, subprime lending similarly encouraged price inflation, buyer exploitation, and deceptive consumer finance little short if any of outright fraud. The subprime lending “spree”  (they’re always called sprees after they fail) was such a stampede into the field that no less than Fannie Mae decided it had to chase Countrywide over the cliff.

• From 1994 through 2008, the Nehemiah home lending initiative — offering three percent down payments and long-term loans with a new donation-based variant — also soon became a runaway train, outlasting at least two Administrations that unsuccessfully tried to kill the practice.

Why did all three of these well-intentioned programs rapidly go awry?  In particular, what made Nehemiah so popular and yet so hard to kill?  A 2009 report from the Center for Public Integrity (CPI) explained:

The model was simple. The FHA required homebuyers to put down a minimum of 3 percent. Nehemiah would front the money to a qualified buyer. After the deal closed, the seller would donate the same amount back to Nehemiah, along with a fee ranging from a few hundred dollars up to one percent of the sales price.

See the circularity? What was a three percent-down loan had just become a zero-down loan, and maybe, just maybe, the seller had established its original asking price three percent higher than it expected to net. What a coincidence!

“In the end, all parties seemed delighted,” the report said. “The buyer got his no-money-down loan, the seller unloaded a house at the asking price, and Nehemiah collected its cut.”

Soon, the paradigm boomed, and similar nonprofits popped up around the country in order to facilitate such transactions. Less than a decade after first being introduced, these no-money-down loans resulted in over a million house sales, and by 2008 represented more than a third of all FHA-backed loans. At the time, the two largest companies performing the transactions — Nehemiah and AmeriDream — themselves had forty percent of the no-money-down nonprofit market, arranging 392,000 mortgages worth $54 billion over an eight-year period .

Nehemiah exploded because it arrived at time when home prices had been rising steadily for fifteen years, the policy winds in Washington were blowing progressively toward boosting homeownership, and millions of home-hungry households — unexpectedly offered no-money-down access to that retreating lowest rung — chose not to look their gift horse in the mouth.

“Seller-funded gifts were an enticement to purchase a specific house at a specific price, usually from a large company developing a huge tract of homes,” the CPI report wrote.

However, like its two predecessors, Nehemiah collapsed, likely due to the same combination of sale price inflation, overeager but income-fragile borrowers stumbling into default, and large losses to the FHA insurance fund.

For those who cannot remember it, 2008 was the year the global-financial-system came within an eyelash of crashing entirely, being saved only by the 2008 Housing and Economic Recovery Act (HERA) that put Fannie/ Freddie into conservatorship, establishing the Federal Housing Finance Agency (FHFA) that to this day oversees both entities, and, taking advantage of the crisis, also repealed Nehemiah.

Now, after lying dormant for fifteen years, “low-down/no-down” has returned, with new optimism and an intriguing new model, in the form of Arrive Home’s EEP program, available to almost anyone. (The Section 184 Home Loan Guarantee Program operates in states with Participating Native American tribes but only for enrolled members of one of the 574 Federally Recognized Tribes.)  

EEP works by partnering with Native American tribes able to issue FHA-insured financing, such as the Tule River tribe.

The financing model is an ownership sandwich in which:

1. Buyer identifies a home that meets with their income parameters.
2. Arrive Home and the tribe underwrite the household.
3. Tribe buys the home, tapping 30-year FHA insured financing directly, and rents it to the household.
4. Household leases the property for 40 years, with a payment schedule identical to a 40-year self-amortizing mortgage. The lease includes an open-ended option to buy the property for a formula-derived price (equivalent to the unamortized balance of the phantom 40-year loan).

Except for the legal title and nomenclature workaround of a lease, the transaction is arithmetically equivalent to having the tribe buy the property, then simultaneously sell it on to the home occupant with a 40-year loan that wraps around the tribe’s 30-year loan.

A Sidebar About Parallel Evolution: Similarities to Islamic Finance
The householder’s transaction structure is similar to Islamic finance’s diminishing musharakah, which avoids riba (Islamic ‘usury’, prohibited by the Quran) by using a month-by-month (or year-by-year) sale-leaseback-rent construct to produce arithmetic identical to a declining mortgage. Diminishing musharakah also has the same consumer protection weakness as EEP — default is punished by instant contract cancellation (instant) rather than a procedural foreclosure (judicial and typically with rights to cure).

The result is economic and emotional equivalency to homeownership for people who may be disqualified from FHA financing, including:

• Self-employed individuals who cannot show a salary. This can include seasonal or contract workers whose annual income is reliable but whose monthly income fluctuates with the weather;
• Individual Taxpayer Identification Number borrowers, legally in the United States but ineligible for a Social Security Number, such as non-resident aliens required to file a U.S. tax return, or dependents/spouses of non-resident alien visa holders or resident aliens;
• People with a short credit file, spotted credit due to their past payment history, or revenue usually excluded from mortgage underwriting (e.g. cash income, inward remittances).

“You don’t have to be a tribal member or be on tribal lands to participate,” Shawn King, co-founder and executive vice president of national sales at Arrive Home, told me recently over email. “Really anyone who has sufficient [a] documentable assets, [b] income, and [c] rental history may qualify. These three things work together to get a profile of an ideal client. Typically, if a borrower is weak on credit score, this can be overcome by sufficient assets.”

Once the transaction is complete and the family has moved into the home, the customer then has open-ended optionality to become homeowner outright any time the family’s income and credit can support it. That’s a huge benefit compared with other programs, including down payment assistance ones.

Before leaping into EEP, however, an informed consumer needs to understand and internalize three issues:

1. Documentary. “Taking title to the property involves the client cleaning up their credit, gaining the correct status, or acquiring enough equity/appreciation to take out with other financing,” King wrote. “Because the underlying financing is an FHA loan, the client can actually assume the loan if they [have become able to] qualify.” 
2. Economic. Due to differences in amortization periods, the borrower’s remaining phantom mortgage will be higher than the lender’s entity-held FHA loan, and the lender gains that spread at payoff — so they’re motivated for the borrower to become a homeowner.
3. Downside of non-payment. “If the client doesn’t pay as agreed, they can forfeit the property,” added King. That means not only eviction but also loss of appreciation and equity buildup. It would be a massive householder economic loss, so leaseholders going in tending to buy should strive continually to become able to buy and then convert leasehold rental into freehold homeownership as soon as they can.

Although the program is an entry to eventual homeownership with no down payment, it isn’t cash-free. Some closing costs, an application fee, the first month’s payment, and other checks must be written, just as in any regular home purchase, or for that matter moving into a rental apartment. All told, King estimates those additional expenses at 3.5-10 percent of the home’s purchase price. Though that added cost is not exactly cheap, “the seller of the property can give concessions to reduce the entity FHA loan costs, which will lower the fee for the client,” he said.

Costs aside (they’re rolled into the leaseback/loan arrangement), for households the major issues are: (a) whether the monthly payments are affordable; and (b) given that default could result in instant forfeiture of option to buy and equity buildup, whether they can stay current every month until they are able to buy out the leasehold and become full freehold owners.

With the right type of borrower household — families with a track record of commitment and service to their country at personal risk — and the right type of lender — one that is genuinely mission motivated, knows and underwrites the customer base well, has continuing touch with that base — “low-down/no-down” homeownership finance can be not only uplifting for aspiring households, but also safely profitable. VA home lending demonstrated this and continues to demonstrate it.

But the wayward fallen – Section 235, subprime, and Nehemiah – also show how rapidly and badly wrong it can go, in multiple ways:

• Developers capturing applicants and force-feeding them properties at inflated prices.
• Non-profit intermediaries only too happy to book fees.
• Innumerate borrowers insensitive to price.
• Rerouted or camouflaged developer/seller cash flowing to the buyer for the down payment, accompanied by a serendipitous rise in the home purchase price.

Although the EEP structurally avoids these pitfalls, gremlins can easily creep into the best-intended program. So warn the ghosts of Nehemiah.

Time will tell if they do here.