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Down Payment Assistance
by Elizabeth Hotz, First Time Denver Home Buyer Helper
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.
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Visit http://www.DPAGroundSwell.org, a web-based community established to mobilize the growing industry opposition to the October 1 ban on seller-funded downpayment assistance (SF-DPA).