HELP! What is FHAP? (disclosure, appraisal, negotiating, agent)

[sueinge]

Our buyers are going FHA and we agreed to a certain amount of closing costs and now they are asking us to up our sales price by $4000 so they can get something called FHAP assistance? Our agent says it is all on the up and up and that our net won't change, but we have to re sign the contract at the higher price so the buyers can get the closing costs they need. Is this risky for us?

[Daddys///M3]

Do you mean DAP? It sounds like you are dealing with a seller funded downpayment assistance program. They are totally legal. I do wonder why this discussion didn't happen before a contract was written though. If they needed the DAP they should have asked for it in the initial offer.

[sueinge]

Yes, I agree, they should have. It was not in any discussion when we were negotiating. I am relieved that you said it was legal. I started to really panic when they wanted to change things, and both agents are saying "its no big deal, just sign here" blah blah blah.

[Sarah Maske]

I am not positive about this, but speak with the mortgage broker and find out if the higher price still fits within the appraised value - I suspect the appraisal has already been ordered and completed? I know that some FHA programs do not allow you raise the purchase price to cover closing costs, but a good mortgage broker will have the facts on that.

[rcarrillo]

It is legal, but as Sarah mentioned you have to be careful. First the home has to appraise at the new, increased price. If you were selling it below market value then you shoudl be fine, but depending on location and price range $4000 added on top can make a difference.

Second, some underwriters DO NOT like to see that buyers are increasing the price to cover closing costs or DPA. Why? Because although in your case it might be okay, it starts that slippery slope to appraisal fraud and other risks. What if your home would not appraise for the new value? What if the buyer needed $10,000 in costs and assistance added?

Too many people ran up the prices and put pressure on appraisers to "close the deal" by inflating the value that HUD is wary of the whole seller-funded DPA process. They have been trying to kill it for over a year now and while legal, it is more of an unintended loophole that they are trying to close.

Hopefully there is full disclosure to everyone involved about the risks/benefits and it does not cause a problem. I have used it before and it is a great when it is done correctly.

[palmcoasting]

One thing to watch out for is the extra costs. I don't know where you are and who is responsible for the transfer taxes, title insurance costs, etc, but there is an extra cost on all of those since they go off the purchase price. So does the commission. While it's not going to be a huge amount of money becuase we're only talking $4000, there is a difference.