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You guys are missing my point, as well as the genesis of this discussion.
Nobody is disputing the down payment requirement.
The main point: FHA allows you to use down payment assistance; however it's flawed in implementation. A comment was made that it should be abolished in favor of 0% down.
there is still a down payment; just not cash from the borrower; rather a non profit or otherwise. Cash is cash.
I don't see how that's any different than a borrower who happens to comb together $20,000 from somewhere. Money is money.
Well it really isn't cash as the "down payment" is just being covered by an inflated sales price.
DPA FHA loans have over twice the default rate of non-DPA FHA loans.
I am not against FHA offering a $0 down product, but the extra risk should be accounted for by either a higher rate and/or higher mortgage insurance premium. It could be further restricted to those with excellent credit scores, lower DTIs....
Contrary to many posters there are many capable borrowers who pose little threat of default with $0 down. There are other people who should not be granted a mortgage even with 20% down.
We're just gonna have to agree to disagree. Having the bank take all the risk while the buyer puts nothing down reminds me of the old joke about bacon and eggs. "The chicken was involved, but the pig was committed."
Look all of the yappin' back & forth about why or why not FHA is something that should or shouldn't be in play; when I'm the prime example as to why it should be sooooooo acceptable.
I have a Bachelors degree in electronic engineering as of 1992 and live in the aerospace capital of the world, but yet I couldn't even get one interview for a job within one of these numerous facilities for the life of me; now,,,,, now my wife and I are working on our 2nd and 4th years in our nice school district jobs and our Chapter 13 is going on three years behind us, no lates, no ****, and now we have termites flying out of the open beams of the inside of our walls to our rental home, so does anyone deserve a little break in this real estate game that's been played 100 times over? I think so, am I serious about a silly commitment to a mortgage so not to have to put any money down? YOU BETCHA, my wife and I were right in the midst of the whole mortgage breakdown of the 90's (in the Antelope Valley) and we were seeing the same things going on with all of the empty houses & stuff, and this was when I couldn't get a single interview for a decent engineering job. So in all of this, yes! I do feel like if there's any-way some one can scratch our backs in this real estate market today then we are the prime examples that deserve a good rubbin'. I won't feel the least bit guilty about utilizing FHA and all it's perks. Now that our employment situations have suited us, but we're have crisis in a rental, yeah America, get ta scratchin, there's plenty of good people out there with legitimate situations, any bad mortgage situations and what not, that's just plain & simple B-U-S-I-N-E-S-S (like they say in business)
Oops, I had to edit because I forgot to mention that my dad (who is still a part of our economy) fought Normandy beach WWII and so ,,, just another part of the "Federal Gimmie"
Last edited by Blockheadofaknew; 07-09-2008 at 03:50 PM..
Contrary to many posters there are many capable borrowers who pose little threat of default with $0 down. There are other people who should not be granted a mortgage even with 20% down.
This is the core of the issue. Some people think that those who go 0% down under FHA are almost guaranteed to default. It's just not true if the borrower shows a proven track record of performance and financial stability, Cash or No Cash.
This is the core of the issue. Some people think that those who go 0% down under FHA are almost guaranteed to default. It's just not true if the borrower shows a proven track record of performance and financial stability, Cash or No Cash.
So, if I'm a lender that takes 100 no downpayment mortgages, what do I have as far as equity?
So, if I'm a lender that takes 100 no downpayment mortgages, what do I have as far as equity?
ZERO.
Would never happen if I'm in charge.
Equity?
*sigh*. One more time. Try to watch closely this time, please.
Loan is disbursed. 0% down from the borrower. On the back end, FHA gets the grant funds from the nonprofit to substitute for the downpayment. Downpayment forwarded to lender.
There's your 'equity'. You just have to wait a little longer for it - back end at closing rather than upfront. Same money. Money is money.
*sigh*. One more time. Try to watch closely this time, please.
Loan is disbursed. 0% down from the borrower. On the back end, FHA gets the grant funds from the nonprofit to substitute for the downpayment. Downpayment forwarded to lender.
There's your 'equity'. You just have to wait a little longer for it - back end at closing rather than upfront. Same money. Money is money.
The purchase price of the house is typically increased to cover the down payment amount. Does it really make sense to do the equity calculations based on a number that's inflated with the sole intention of bypassing rules prohibiting 0% down purchases, or should you use the original purchase price?
E.G. a house would sell for $100K without DPA. The seller adds ~$3K in down payment to the price and launders that money through a non-profit to the buyer as a "gift". The sale price is ~$103K and after putting ~$3K down, the loan total is $100K. Can anyone seriously argue that there's equity in that situation? It looks to me like there's a $100K loan balance on a house worth $100K on the open market - i.e. 0% equity.
You're forgetting that lender/broker/nehemiah doesn't determine the value of the home.
That's the appraiser's job. If the appraiser doesn't come with the same value then there's no equity. If he does, then there is equity.
Equity is also determined by the current market, and not by what you purchased the home for. You could buy a home that is already losing value before you moved into the home! This is what happened recently in many states with builders. Homes were selling for 300k, and it took the builder 6months to build. After the 6months the buyers didnt want to buy the home that was now worth 230k. It also works vice-versa.
Quote:
Originally Posted by KCfromNC
The purchase price of the house is typically increased to cover the down payment amount. Does it really make sense to do the equity calculations based on a number that's inflated with the sole intention of bypassing rules prohibiting 0% down purchases, or should you use the original purchase price?
E.G. a house would sell for $100K without DPA. The seller adds ~$3K in down payment to the price and launders that money through a non-profit to the buyer as a "gift". The sale price is ~$103K and after putting ~$3K down, the loan total is $100K. Can anyone seriously argue that there's equity in that situation? It looks to me like there's a $100K loan balance on a house worth $100K on the open market - i.e. 0% equity.
The purchase price of the house is typically increased to cover the down payment amount.
This is not always the case, particularly in today's market.
DH and I are closing on a house soon and are using DPA for both DP and closing costs. We offered list price INCLUDING DP and closing costs, so the price was not inflated. Now, I suppose you would argue that we could have put our money into it and made a lower offer - and we have the funds to do this - but we would rather have that money in reserve to cover any potential problems down the road. In the end, the house appraised for $20,000 higher than list (which actually shocked me, I figured it would appraise right at sale's price). We can afford the payment no problem, have quite a bit in reserves, and did not inflate the value of the house to cover it.
ETA - our loan amount is NOT 100% of the sale's price, there is technically "skin in the game," we just got the seller to put it there for us.
It is a buyer's market - no one should realistically have to offer more than sales price just to get DPA, imo. If you do, then move on to the next house.
This is not always the case, particularly in today's market.
DH and I are closing on a house soon and are using DPA for both DP and closing costs. We offered list price INCLUDING DP and closing costs, so the price was not inflated. Now, I suppose you would argue that we could have put our money into it and made a lower offer - and we have the funds to do this - but we would rather have that money in reserve to cover any potential problems down the road. In the end, the house appraised for $20,000 higher than list (which actually shocked me, I figured it would appraise right at sale's price). We can afford the payment no problem, have quite a bit in reserves, and did not inflate the value of the house to cover it.
ETA - our loan amount is NOT 100% of the sale's price, there is technically "skin in the game," we just got the seller to put it there for us.
It is a buyer's market - no one should realistically have to offer more than sales price just to get DPA, imo. If you do, then move on to the next house.
Exactly, and in the areas where this practice is in place, it needs to be corrected. There should be no need to adjust sales price to compensate for a 'pending' grant. The seller should know and be able to trust in the fact that the money's coming. Like I said, it's coming after the fact, just not upfront. Problem is the banks are greedy and don't want to wait for money. That's why we have issues now.
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