First time buyers and the down payment assistance program.
Doesn’t a down payment assistance program (DPA) sound like a wonderful way for first time buyersthat don’t have a down payment or access to help from parents for that down payment to buy a piece of the American Dream? I think it is and it isn’t and let me try to explain.
It seems that part of the reason for this down turn in the Real Estate market and the economy is that lenders made it possible for people to grab that glimmering piece of the dream with 0 money down through down payment assistance programs and 100% financing or what was commonly known as an 80/20 or stated income loans commonly known as I am a LIAR loans. Now you know as well as I that if you don’t have any skin in the game it is much easier to walk away.
And, walk away is what people have been doing. Oh, first they want to try and do the Short Sale thing that they don’t qualify for because they aren’t suffering a hardship, they just think that since their home isn’t worth what they originally paid that it was a bad investment and they will walk away and rebuild their credit over the next 5-7 years. Shame on you!
Now there are some down payment assistance programs still available. Calhfha is one and some cities and counties still offer down payment assistance, however, we are caught in a catch 22. Currently in the area I work, there are 3524 active listings on the market 39% of them are REO (Bank Owned) properties and 40% are sellers attempting to do a short sale. So, with most bank owned property the seller (bank) will not even consider an offer from a buyer needing down payment assistance and with short sale property if your buyer is willing to sit patiently for 6-8 months to get an answer from the bank they will find that the bank will limit the amount of assistance or not allow that expense at all.
Keep in mind that with DPA‘s you, the buyer, to be competitive with other buyers who do not need the assistance will need to offer above the asking price to cover that credit back from the seller. Now, the reason most Banks are not accepting contracts with DPA‘s is the increased risk of the transaction closing or in other words the buyer with his own money to put in the mix is more likely to close the transaction on time and the new owner will more likely stay in the home even if the value slips a little bit in the next few years and Calhfha loans take 15-25 days longer to close. Real Estate= a long term investment.
I know what you are thinking…. But, Kelly, I heard there is a Calhfha program that has participating banks offering homes for sale that they will accept a calhfha loan. Yes that program is up and floundering. The deal is if the bank does not have any other offers on the property and they receive an offer from a Calhfha buyer they are bound to address it and if they can come to terms accept it. What do you think happens in the real world though? The banks almost always have other non Calhfha offers in the pipeline and shouldn’t the bank be able to sell the property for highest and best since they have already eaten a huge loss on just about every home they have taken back because the previous owner thinks he should no longer have to make payments on his home that today is not worth what it was yetserday?
So what to do? Buyers, have patience and save for your downpayment while looking for your first home. Get pre-approved from a reputable lender. Stop looking for the instant gratification. You will enjoy the process and respect yourself for actually being part of the fix and not the problem.
Happy Hunting
Kelly…
Comments
3 Responses to “First time buyers and the down payment assistance program.”
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Actually, nonprofit downpayment assistance (DPA) is not any riskier than DPA gifts from family members or the government.
Here are some statistics that I found. Default claim rates for homeowners with an FHA loan after three years are as follows:
• With no downpayment assistance – 3%
• Family/government assistance – 5%
• DPA – 6%.
It is important to note that these are not subprime loans, which are the main cause of the current problems in the housing market not DPA. Buyers cannot get loans for more than the appraised value of the house. Using these programs correctly does not inflate the value of the home. If used correctly, the home actually will have 3 – 6% equity upon closing for the buyers not zero.
Eliminating DPA will devastate the already terrible housing market.
The great news is that the House Financial Services Committee passed the FHA Seller-Financed Downpayment Reform and Risk-Based Pricing Authorization Act of 2008 (H.R. 6694). This is a bill introduced on July 31 that would reinstate seller-funded DPA. If passed and signed into law, it will allow downpayment assistance to continue indefinitely.
If you agree here are a couple of ways that you can help.
Visit http://www.DPAGroundSwell.org, a web-based community established to mobilize the growing industry opposition to the October 1 ban on seller-funded downpayment assistance (SF-DPA).
Click or copy and paste this link and it will take you to the page to send a letter. It takes 2 seconds it has pre-written paragraphs that you can pick easily to express your view on it. (leave out the ones that don’t apply) and when you fill out your contact info with address and zip it automatically sends to your representatives.
http://capwiz.com/nehemia/issues/alert/?alertid=11709431
Thank you for your time.
Mary,
Great comment and I couldn’t agree more. If you check deeper into our blog you will see where we put a call out to people to help with a link to DPAGroundSwell. http://wallaceandkelly.com/page/2/.
However all this that you speak of does not change the real world application of the DPA and the banks reluctance to accept offers from buyers using these types of loans. And as of now the banks control a majority of the homes on the market for resale.
You make absolutely excellent points and at times I wish we all lived in Utopia.
Thank you taking the time to read our blog we welcome your comments.
Kelly…
Hi Kelly,
Thanks for the call out on the DPAGroundSwell.
Unfortunately, banks are reluctant to approve any kind of lending lately.
Here’s to things looking up.
Take care,
Mary