Oct 01 2007
The “Real” Down Payment Assistance
100% financing is still available and it comes from qualifying for State, County and City assistance, what I call “real” down payment assistance. In fact their business is booming, and unfortunately like FHA, many loan officers and Realtors have no idea how to work these programs. Why don’t they know these programs? Because for the last five years the industry used a different form of assistance.
As assistance that did not come from a “quasi” governmental agency but an assistance that comes from a seller escalating the price of their home and then “funneling” the money to the buyer. Funneling may make the process sound less than reputable but be aware the IRS is diligently trying to put this form of assistance out of business. Here is how it worked. If a buyer needed cash for down payment and did not have it, they raised the price of the home by $10,000 and then had the seller donate it to a so called charitable organization. The organization would then take their cut and miraculously find our buyer and give them a grant for down payment assistance. Remember a long standing lender rule prohibits a seller, lender or Realtor from giving a buyer down payment money, they needed a middle man.
The industry closed a lot of loans that way, so what is the problem? The problem is people were paying $210,000 for a $200,000 house. In times of run away real estate values we could get away with the increase. Today, if we sell a house for $200,000 we worry about getting it to appraise for that let alone $10,000 more. This form of down payment assistance is now dead in today’s market, leaving the “real” programs.
The “real” programs are CHFA, CHAC, Aurora Hope, Douglas County, Arapahoe County, Adams County, Mayors Bond Program as well as others. How do they work? They get the money to give the buyer from many sources, charitable, corporate and governmental programs. The key is that it is public assistance, not a seller funded program. These programs do have income restrictions and in many cases you are required to be a first time home-buyer. A first time home-buyer is someone who has not owned a home for the last 3 years. If you sold your home over 3 years ago and have been renting you are considered a first time home-buyer……again.
Be aware not all lenders can offer these programs. I am glad to be approved to do all of the most popular. I have links on this site to several of the assistance organizations.
Effective 30 days from the date of publication in the Federal Register (we assume October 31st), HUD will prohibit sellers or interested third parties that financially benefit from the transaction to provide downpayment assistance. This effectively ends seller paid assiatance programs. However, wait for the backlash, there always is.