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Old 05-23-2008, 09:07 AM
 
148 posts, read 452,270 times
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So I'm looking at purchasing soon, and we'd like to keep our reserves as, well, our reserves. So since 80/20s seem to have dried up, we're looking at a FHA and want the down payment and closing costs gifted as much as possible. There seem to be plenty of these companies, and I thought I was pretty clear on how they work.

However... now that we've actually started shopping around for terms, we've found that some of the brokers we've contacted act as if DPA programs are a) hard to obtain and b) damn near criminal and they're scared to even want to work on a loan for someone who wants one.

I understand it kind of skirts the gifting rules, but they have been deemed legal, no? What am I missing?
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Old 05-23-2008, 10:16 AM
 
Location: Las Vegas, Centennial Hills
2,013 posts, read 4,639,740 times
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A few that I know of have remained legal. Ameridream and Nehemiah, to be specific. There is also one more that I can't recall the name of, but is set up through Native Americans or something and as such is totally legal. There are also state and federal grants that you can look into.
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Old 05-23-2008, 10:29 AM
 
Location: Martinsville, NJ
5,932 posts, read 7,004,337 times
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Quote:
Originally Posted by enigmakairos View Post
However... now that we've actually started shopping around for terms, we've found that some of the brokers we've contacted act as if DPA programs are a) hard to obtain and b) damn near criminal and they're scared to even want to work on a loan for someone who wants one.

I understand it kind of skirts the gifting rules, but they have been deemed legal, no? What am I missing?
These programs make it easier for people to buy a house that they cannot actually afford. Now I know you think that's just a technicality, that your rent is the reason you haven't been able to save the required down payment amount, and that you'll be able to afford the monthly payments. But at the end of the day, you're buying a house you can't afford. Now, ther last time that happened in great numbers was when mortgages started being offered with greatly reduced restrictions and at great teaser rates that would go up after a period of time. So real estate agents and mortgage brokers "helped" their clients learn about those, some even pushed them, thinking perhaps that they were just being helpful, getting their clients into a house they would otherwise not be able to afford. And then, when the whole mortgage fiasco started, and people were having difficulties with payments, or couldn't sell the house for what they still owed, what happened? Gigantic numbers of people came out to excoriate the real estage agents and mortgage brokers for making the poor hapless consumers buy something they never should have bought in the first place. It was the real estate and mortgage agents fault, because that consumer knew very little & trusted the agent to help them through this confusing transaction.

Does it really surprise you that we would be cautious about recommending you skirt the rules to buy another house you can't afford?
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Old 05-23-2008, 11:29 AM
 
Location: Charlotte, North Carolina
5,137 posts, read 11,800,245 times
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The main reason is that many lenders haven't done a DPA loan yet.
A lot of lenders are JUST getting into FHA, and dont know the full spectrum yet.
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Old 05-23-2008, 11:34 AM
 
148 posts, read 452,270 times
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Quote:
Originally Posted by Bill Keegan View Post
Now I know you think that's just a technicality, that your rent is the reason you haven't been able to save the required down payment amount, and that you'll be able to afford the monthly payments. ...

Does it really surprise you that we would be cautious about recommending you skirt the rules to buy another house you can't afford?
There are a lot of assumptions going into those statements. I'm not going to discuss the depths of my financial situation online, but we're pretty conservative with our finances and we can afford what we're looking for. We're not first time home owners and we've never put ourselves in a position of living paycheck to paycheck. There are plenty of reasons to prefer liquidity or short-er term larger yield investments with $90k worth of down payment. It's a numbers game, and I fully admit it can be tricky, but with our situation the ability to have flexibility with that amount of money is preferable.

20% is the benchmark for determining a homeowners likelihood of walking away in hard times. That's not necessarily synonymous with "You can't afford it." One can be a multi-millionaire today then screw up or experience 'hard times' and be broke this time next year. Affordability isn't a constant.

There are intelligent people who can weigh risk reasonably and make good financial decisions with these non-traditional options. Answer the question without making assumptions and lumping everyone in the same boat.
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Old 05-23-2008, 11:39 AM
 
Location: Las Vegas, Centennial Hills
2,013 posts, read 4,639,740 times
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Quote:
Originally Posted by Bill Keegan View Post
These programs make it easier for people to buy a house that they cannot actually afford. Now I know you think that's just a technicality, that your rent is the reason you haven't been able to save the required down payment amount, and that you'll be able to afford the monthly payments. But at the end of the day, you're buying a house you can't afford. Now, ther last time that happened in great numbers was when mortgages started being offered with greatly reduced restrictions and at great teaser rates that would go up after a period of time. So real estate agents and mortgage brokers "helped" their clients learn about those, some even pushed them, thinking perhaps that they were just being helpful, getting their clients into a house they would otherwise not be able to afford. And then, when the whole mortgage fiasco started, and people were having difficulties with payments, or couldn't sell the house for what they still owed, what happened? Gigantic numbers of people came out to excoriate the real estage agents and mortgage brokers for making the poor hapless consumers buy something they never should have bought in the first place. It was the real estate and mortgage agents fault, because that consumer knew very little & trusted the agent to help them through this confusing transaction.

Does it really surprise you that we would be cautious about recommending you skirt the rules to buy another house you can't afford?


How is using a DPA program in conjunction with an FHA loan "skirting the rules"? What is your definition of affordibility? These programs were around long before 2003, and will likely be around long after. They are used in conjunction with FHA loans which, as I'm sure you know, are fixed rate full doc loans so there is no chance of adjustment and people must actually qualify for these loans. The OP also mentioned that he has money saved up, he would rather leave it where it is which is not necessarily a bad thing.
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Old 05-23-2008, 11:40 AM
 
Location: Martinsville, NJ
5,932 posts, read 7,004,337 times
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The other thing is that there is a cost. Nehemiah, for example, requires that a donation be made, by the SELLER, equal to the amount gifted to the buyer, plus an administrative fee. So if a seller & a buyer agree to an sale price of $100k for the house, and the buyer needs a "gift" of $5000 to afford the down payment, the seller has to write a check to Nehemiah for something north of that $5k. Of course that means that he has the seller has to increase the price of the house to be sure he actually gets the $100k. So they have to rewrite the contract so it's $105k, which may or may not have an effect on the appraisal & the loan.
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Old 05-23-2008, 11:41 AM
 
2,809 posts, read 5,920,578 times
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Many of these programs are limited to first time homebuyers or have other dynamics, such as specific levels of income or specific locations.

Usually the sponsor agency will have the bank(s) lined up and ready to go for their program.
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Old 05-23-2008, 11:43 AM
 
Location: Martinsville, NJ
5,932 posts, read 7,004,337 times
Reputation: 3530
Quote:
Originally Posted by Daddys///M3 View Post
How is using a DPA program in conjunction with an FHA loan "skirting the rules"? What is your definition of affordibility? These programs were around long before 2003, and will likely be around long after. They are used in conjunction with FHA loans which, as I'm sure you know, are fixed rate full doc loans so there is no chance of adjustment and people must actually qualify for these loans. The OP also mentioned that he has money saved up, he would rather leave it where it is which is not necessarily a bad thing.
It's skirting the rules because no one is actually giving you a gift, except legally. The "donator" has to get back the money they gave as a gift, and in some cases that money has to come from the seller. It's a shuffling of paper, meant to skirt the gifting rules.
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Old 05-23-2008, 11:44 AM
 
3,362 posts, read 7,539,578 times
Reputation: 1424
Quote:
Originally Posted by enigmakairos View Post
So I'm looking at purchasing soon, and we'd like to keep our reserves as, well, our reserves. So since 80/20s seem to have dried up, we're looking at a FHA and want the down payment and closing costs gifted as much as possible. There seem to be plenty of these companies, and I thought I was pretty clear on how they work.

However... now that we've actually started shopping around for terms, we've found that some of the brokers we've contacted act as if DPA programs are a) hard to obtain and b) damn near criminal and they're scared to even want to work on a loan for someone who wants one.

I understand it kind of skirts the gifting rules, but they have been deemed legal, no? What am I missing?
I would say two reasons. One, many/most of these companies were deemed as not truly non-profit companies and lost their designation. Two, they are a pain in the a**. FHA loans are all ready a big enough pain and DPA just adds to it.

From what I have been told the default rate is over 2x as high on FHA w/DPA as compared to straight FHA. I used to do quite a few of these, but as I get older and now that I am doing a lot of banking in addition to mortgages, I am much more of the ilk that the borrower's should just be able to come up with 3%.
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