Down Payment Assistance

By Elizabeth Hotz, First Time Denver Home Buyer Helper

28 August 2008

All Denver Real Estate.Com

Traditionally, FHA loan programs require Buyers to have a minimum 3% down payment when buying a home. In the past, many Buyers ask the Sellers to pay this 3% as apart of the contract. This is called “Seller down payment assistance.” In some markets, you even see that Sellers are building in this 3% into their purchase price because this practice is so common.

But, there have been rumors for months that this assistance is going away. Well, it is going away very soon.

October 1, 2008 this will all change. On July 30, 2008, President Bush approved a new law known as the Housing Rescue Plan. This new plan was originally seen as a valiant effort from the government to save our Nation’s failing housing market. It aims to keeps 400,000 families across the nation from losing their homes to foreclosure. It basically allows these families to refinance their homes in order to get a more manageable monthly mortgage payment.

Furthermore, this bill will offer home buyers more tax breaks, implement a national system for licensing mortgage brokers and officers, and raise the cap on loan amounts that Freddie Mae and Fannie Mac can guarantee. What wasn’t bought to light is that this new plan will now eliminate Seller down payment assistance and requires anyone using a FHA loan to provide at closing 3.5% of the purchase price in either the form of a down payment or in closing costs.

Although the government feels that this will help to stabilize the market, as a broker who works with first-time homebuyers, I can see exactly the opposite. Not that I favor going back to the days of 100% financing for all. However, plenty of Buyers who are anxious to jump on the low interest rates and lower prices do not have the extra cash to bring to closing.

Thank goodness that this bill still allows down payment assistance from family members, government programs, or charities that are not seller-funded. For instance, a Seller can pay the 3% to AmeriDream (a non-profit organization), along with an administration fee and they will grant it to the Buyers. So not all is lost.

Keep in mind that the October 1st deadline is quickly approaching - so get under contract fast if you need down payment assistance! Otherwise, per prepared to make a down payment on a new FHA insured loan after that date.

Comments

[Dan]

Elizabeth,

My wife and I just signed a contract for a new- construction Ryan home (also known as NVR, Inc) this past week. I am also financing the home through their mortgage company, in order to make things smoother. So, as of this point, we have been pre-approved for the mortgage (they've seen all of our financial statements, ran our credit, etc) and we have signed a contract on the house. We cannot close on the house until the end of November becuase that's when they'll be finished building it. As long as I get full loan approval and a clear to close by the end of September, can we still qualify for the seller funded DPA? NVR says they are confident that we will receive DPA, but they cannot 100% guarantee it. Any advice or expertise you can add would be great.

Thanks,

Daniel

[CB]

Hi Daniel,

Who is providing you with the seller-funded DPA? You should start by talking to them right away. The new law does not allow seller-funded DPA after October 1st—even if you were approved prior to that date.

Hopefully, the law will change, but you should be prepared.

CB

[Debraca]

Elizabeth mentions that Ameridream may still be used..Isn't that program seller funded also?

[CB]

Unfortunately, Elizabeth is wrong. All of these programs are subject to the same law and AmeriDream will not be able to provide DPA after October 1st.

[workingmom08]

It is important to understand what the new law states regarding "credit approved" to determine whether or not you would be able to use the program. The definition of "credit approval date" is the date the underwriter signs the Mortgage Credit Analysis Worksheet or the FHA Loan Underwriting and Loan Transmittal. The actual close date is irrelevant. As long as the MCAW or LT are signed prior to 10/1, DPA can be used on the transaction, regardless of the closing date.

Also, every person who feels that DPA programs are a valuable tool for the real estate market should go to the home page of DPAGroundswell.org and send a message to your elected officials. The only way to beat this is to be diligent and let our voices be heard.

workingmom08

[workingmom08]

I have an update on the DPA situation. Check out this article that talks about a possible compromise between HUD and DPA: http://www.inman.com/news/2008/09/9/congress-weighs-reprieve-seller-funded-gifts. If you haven't taken the time to visit www.dpagroundswell.org, please do so! There is nothing like the voice of Americans raised together in one purpose to get things done! I want DPA programs to be around when I sell my home!

[Heather Melchior]

My husband and I have been trying to buy a house for 2 years now. All of the first time home-buyer programs you can't make more than $45,000 between 2 people to qualify. In colorado, no one can afford a house that makes $45,000 or less a year. They wouldn't be able to make payments. The bad thing about Colorado is that about 9 out of every 10 houses you go look at are foreclosed on and are trashed. My husband and I have had an offer in got 4 weeks now waiting for the bank. We went in w/ asking price, but asked for Ameri-Dream to step in and take care of closing & down since there is A LOT of work that needs done to make it liveable. The bank still has not gotten back with us. In order for us to still get the down & closing paid, we need to have everything but closing done by the end of the month (an answer back, apraisal, inspection & all paperwork). According to AmeriDream, if closing is after they take the program away we will be fine as long as it is approved by underwriting...but still, everything needs to be done but the actual closing. I don't think it is going to happen...banks take their good old time and most people can't wait around and end up backing out. That is what we might have to do if we have to wait too long and this program gets taken away. I have emailed legislation today and though a website to help make a difference in keeping this program around. Many people can make the mortage payments, but coming up w/ $10,000 plus at closing is hard for most people, especially when you need to put that much into it to make it liveable. And trust me, in Colorado, banks are not wanting to sell places cheaper just because they are trashed and foreclosed on. We could buy a new place for the same as a trashed foreclosed one because banks won't budge on the price.

go here to voice your opinion.
http://capwiz.com/nehemia/issues/alert/?alertid=11709431

[workingmom08]

Great news! H.R. 6694, the bill that will save downpayment assistance, has been passed by the House Financial Services Committee, positioning the bill for a floor vote in the coming days. Visit www.DPAGroundswell.org for more details.

[Ohiomomwantingtobuy]

I too need DPA and are unable to give the 3% as part of a down payment i have the closing costs taken care of but lack the other ... has anyone heard anything else on the matter is DPA going to be able to stay

[workingmom08]

The clock is ticking but it hasn't run out! It's not too late to add your voice to the ever growing outcry against ending downpayment assistance programs in America. Go to www.DPAGroundswell.org Today!