Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
And my response was not meant to be aimed an any one in particular, or even to speak negatively of theose who take such a "gift". Hell, if y can get someone to give you part of the money you need to buy your house, good for you. My post was menat as an answer to the question of why lenders & real estate agents might be reluctant to push them.
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.
Let's be honest here Daddy...it is totally skirting the rules. I could see this option being dicontinued at anytime.
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.
Nope, not limited to 1st time homebuyers and no income limitations. They are available to anyone who is willing to pay the admin fee to these "non-profit" (and I use the term loosley!) orginizations.
The price of the home gets way jacked up and the borrower's can litterally get in to a new home for $0.
Nope, not limited to 1st time homebuyers and no income limitations. They are available to anyone who is willing to pay the admin fee to these "non-profit" (and I use the term loosley!) orginizations.
The price of the home gets way jacked up and the borrower's can litterally get in to a new home for $0.
This is true. We were not first time buyers, but the builder was offering 3% down payment through one of these programs on top of closing costs. We could have gotten in for $0 but just chose to add the extra 3% and the ammount we would have spent on closing costs to our down payments.
These programs are like most financial tools available now. If you are responsible, they are just another added perk that can save you money in the long run. If you don't understand the mortgage process or what you are getting into, they can be used to get you into a situation you can't really afford.
This is true. We were not first time buyers, but the builder was offering 3% down payment through one of these programs on top of closing costs. We could have gotten in for $0 but just chose to add the extra 3% and the ammount we would have spent on closing costs to our down payments.
These programs are like most financial tools available now. If you are responsible, they are just another added perk that can save you money in the long run. If you don't understand the mortgage process or what you are getting into, they can be used to get you into a situation you can't really afford.
It does help the process a lot if the seller is "on board". Many sellers and listing agents wonder what the heck you/we are trying to do.
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.
When you state the process this way, it is "Skirting the rules" and not what was meant with these programs. That is one reason Beazer Mortgage got in trouble with HUD, they were inflating the sales price to pay for DPA.
The way DPA is meant is that the seller gives it as a concession instead of negotiating down the price. For example a seller is listing at $100,000 but willing to negotiate down to $95,000. Instead of doing that, the buyer offers $100,000 plus $5000 in closing cost concessions and DPA.
The list price stays at $100,000.
The seller nets $95,000.
The buyer gets a home at list price (not inflated), the seller nets what they want and the buyer gets to buy a home with no DP.
Everyone wins, instead of a $5000 reduction in sales price the buyer gets a tangible benefit of $5000 in assistance. Sure they are financing this into the loan over 30 years, but its a valid choice for consumers as long as they are properly advised and the home's appraise.
Everyone wins, instead of a $5000 reduction in sales price the buyer gets a tangible benefit of $5000 in assistance. Sure they are financing this into the loan over 30 years, but its a valid choice for consumers as long as they are properly advised and the home's appraise.
... that brings up one of my more specific questions. We were told by one broker that problems arise with DPA is with getting the house appraised in the case of the 'assistance' being rolled into the loan / inflated price. Is this problem any less likely when buying new construction/spec home/working with builders? Is there any truth to the "It's a new home/neighborhood so you're coming in with a little bit of equity..." line I hear so often?
... that brings up one of my more specific questions. We were told by one broker that problems arise with DPA is with getting the house appraised in the case of the 'assistance' being rolled into the loan / inflated price. Is this problem any less likely when buying new construction/spec home/working with builders? Is there any truth to the "It's a new home/neighborhood so you're coming in with a little bit of equity..." line I hear so often?
There is always the problem of appraised value when you are "rolling in the assistance". That is one of the BIG issues that HUD found with DPA programs and that some builders had, they inflated the appraised value to make the numbers work so that they could get max dollar and still "give" the buyer concenssions. In theory everyone wins, in reality it means buyers are overpaying and lenders are taking on a greater risk.
In theory (again), builders should have more room to cut profit margins and offer DPA. If they are raising the prices to cover it, its the same as any other seller doing so.
There is no truth to the myth that you are getting "equity" by buying a new home versus an existing. It depends on the home, the area and the price you pay. Both can be over or undervalued.
More often.... you are WORSE off by buying a new home if its a new subdivision. Imagine this, you pay $200,000 for a brand new home to your tastes. 2 years later, you want to sell... you still owe virtually the same balance you borrower + you have to pay Realtor's comission and possibly some expenses to sell. Meanwhile, the builder is still selling BRAND NEW homes and is your direct competition.
So if they are selling for the same price as you, why would anyone buy your 2 year old home with some wear/tear and personal tastes versus a brand new home for roughly the same price?
Worst yet is if the builder offers "incentives" of to people buying from them. Now you have to compete against that as well. Many people rave about the $10-20,000 the builders are discounting homes or giving in upgrades. I am sure everyone who bought a home in that communit in the last few years is not so thrilled that their home's value was effectively decreased by $10-20,000 and they have no ability to offer the same.
More often.... you are WORSE off by buying a new home if its a new subdivision. Imagine this, you pay $200,000 for a brand new home to your tastes. 2 years later, you want to sell... you still owe virtually the same balance you borrower + you have to pay Realtor's comission and possibly some expenses to sell. Meanwhile, the builder is still selling BRAND NEW homes and is your direct competition.
So if they are selling for the same price as you, why would anyone buy your 2 year old home with some wear/tear and personal tastes versus a brand new home for roughly the same price?
Worst yet is if the builder offers "incentives" of to people buying from them. Now you have to compete against that as well. Many people rave about the $10-20,000 the builders are discounting homes or giving in upgrades. I am sure everyone who bought a home in that communit in the last few years is not so thrilled that their home's value was effectively decreased by $10-20,000 and they have no ability to offer the same.
The ONLY reason they got in trouble was because of fraudelent applications that lead to foreclosure.
They were overstating the income not the property value.
Remember that a builder can determine the value of their homes. An appraiser is sent out to back up the value of the home. Beazer didnt get into trouble because of the DPA.
Quote:
Originally Posted by rcarrillo
When you state the process this way, it is "Skirting the rules" and not what was meant with these programs. That is one reason Beazer Mortgage got in trouble with HUD, they were inflating the sales price to pay for DPA.
The way DPA is meant is that the seller gives it as a concession instead of negotiating down the price. For example a seller is listing at $100,000 but willing to negotiate down to $95,000. Instead of doing that, the buyer offers $100,000 plus $5000 in closing cost concessions and DPA.
The list price stays at $100,000.
The seller nets $95,000.
The buyer gets a home at list price (not inflated), the seller nets what they want and the buyer gets to buy a home with no DP.
Everyone wins, instead of a $5000 reduction in sales price the buyer gets a tangible benefit of $5000 in assistance. Sure they are financing this into the loan over 30 years, but its a valid choice for consumers as long as they are properly advised and the home's appraise.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
