Downpayment Assistant Programs (DAP) – How do they really help??

[Coming Clean]

I am so confused about these programs, which claims that they are providing assistance to the home buyer without any out of pocket funds from the home buyer. But really isn’t the home buyer paying the funds and even interest.

The way these programs had been explained to me is that let’s say you agree with a buyer to purchase the home for $100k. You obtain a loan for 100% and use a DAP of 3%. But now instead of borrowing $100k you end up borrowing $103k. Is that the way it works?

I always thought the downpayment meant reducing what you owe not increasing. Why would I want to pay $3k plus interest for 30yrs just to get assistance? Then it really isn’t assistance if I have to end up taking out a bigger than needed loan, just to get a little help. This really ends up being of no help.

Perhaps I have this all wrong, can someone kindly enlighten me. I’m trying to determine if it’s worth going for a DAP and the best way to go about it.

[jq26]

Some gov't progams actually give some money for certain types of buyers (mostly low income). Or there was one posted a few days ago where there are very favorable mortgage RATE terms for permanently disabled buyers in Maryland.

You have to go through each program and see what the terms are and ask where the funds are coming from. Most of these are non-government and so, really, you are just gaining the ability to borrow more and put down a lump sum payment as required. They allow you to game the system a bit by having the seller (or you, the buyer) obtain the money from them only with an agreement to repay the money after closing. In some cases, it would allow you to buy a house when you ordinarily would not be able to, but the money either comes from a larger loan balance or from a seller credit that would otherwise have gone to you.

[LVMortgageMom]

The way these programs had been explained to me is that let’s say you agree with a buyer to purchase the home for $100k. You obtain a loan for 100% and use a DAP of 3%. But now instead of borrowing $100k you end up borrowing $103k. Is that the way it works?

I always thought the downpayment meant reducing what you owe not increasing. Why would I want to pay $3k plus interest for 30yrs just to get assistance? Then it really isn’t assistance if I have to end up taking out a bigger than needed loan, just to get a little help. This really ends up being of no help.

If you don't have it and the loan requires a 3% downpayment, then you do NEED it. Some loan programs allow your CLTV or combined loan to value go up to 103%. So, you have a 1st mortgage for 97% of the value of the property. Then you have a 2nd mortgage for 6% of the property. The 2nd mortgage is used to meet the 3% down payment requiremnet of the 1st mortgage and to cover closing cost. Hope that didn't confuse you.

With the the type of program that you are talking about, typically the seller will increase the cost of the home to assist with the downpayment. So, using your example, if the sales price was 100,000 and you needed 3k for the downpayment, they would increase the price of the home to 104k. This will cover your downpayment and any administrative fees that they may have. A third party has to gift you the money and then be reimbursed by the seller. It's not the best option when purchasing a home, but its an option for those who don't have the required downpayment.

[jq26]

The larger question is, despite the intent of these "assistance" programs, is a buyer better off owning a property with no equity than being a renter? That is debatable. Low income buyers do not get much, if at all, tax benefit from homeownership since the itemized mortgage deduction is in lieu of the standard deduction AND because the affect of marginal rates is the lion's share of tax benefit is for high earners with large mortgages. Then there is the additional monthly carrying cost that can bury the type of borrower that will use this type of program. 103% ltv is a nice loan PLUS mortgage insurance PLUS real estate taxes PLUS rhe inevitable large purchase such as a roof or broken sewer pipe. These things are just a nuisance for higher income homeowners, but can send a borrower that is just making it every month into our CIC bankruptcy forum.

Just something worth considering for those out there looking to stretch to buy a home.

[Moneedshelp]

The larger question is, despite the intent of these "assistance" programs, is a buyer better off owning a property with no equity than being a renter? That is debatable. Low income buyers do not get much, if at all, tax benefit from homeownership since the itemized mortgage deduction is in lieu of the standard deduction AND because the affect of marginal rates is the lion's share of tax benefit is for high earners with large mortgages. Then there is the additional monthly carrying cost that can bury the type of borrower that will use this type of program. 103% ltv is a nice loan PLUS mortgage insurance PLUS real estate taxes PLUS rhe inevitable large purchase such as a roof or broken sewer pipe. These things are just a nuisance for higher income homeowners, but can send a borrower that is just making it every month into our CIC bankruptcy forum.

Just something worth considering for those out there looking to stretch to buy a home.

so true. this accounts for a portion of the housing crisis, those trying to spread themselves too thin for the basics. then those who just wanted more than they could afford

[amortgageman]

I am so confused about these programs, which claims that they are providing assistance to the home buyer without any out of pocket funds from the home buyer. But really isn’t the home buyer paying the funds and even interest.

The way these programs had been explained to me is that let’s say you agree with a buyer to purchase the home for $100k. You obtain a loan for 100% and use a DAP of 3%. But now instead of borrowing $100k you end up borrowing $103k. Is that the way it works?

I always thought the downpayment meant reducing what you owe not increasing. Why would I want to pay $3k plus interest for 30yrs just to get assistance? Then it really isn’t assistance if I have to end up taking out a bigger than needed loan, just to get a little help. This really ends up being of no help.

Perhaps I have this all wrong, can someone kindly enlighten me. I’m trying to determine if it’s worth going for a DAP and the best way to go about it.

Downpayment assistance is used for buyers, who would otherwise (credit, income) qualify, enable them to purchase a home with little or no down payment.

The program I like to use is the Nehemiah Down Payment Assistance Program. This program allows the buyer up to six percent of the purchase price for closing costs and down payment towards the purchase of a home. Using this program does not increase your loan to 103% of the purchase price. (although if you finance Up Front Mortgage Insurance Premium {1.5% of purchase price} on an FHA loan).

Today you are definitely in a buyers market, and sellers are more apt to negotiate and agree to pay the six percent for down payment assistance to sell their home.

Let's say ypu find a home that you want to purchase listed for $150,000. When you put in your offer you may ask for $145,000 purchase priceand seller agrees to provide 6% down payment assistance through Nehemiah Corp. The seller may counteroffer with $150,000 and agree to the down payment assistance, or not. It really depends on the seller, and how much they are willing to compromise. If you are needing DPA, then this will be your sticking point, otherwise, you go to the next home.

Now let's say you accept their counteroffer, and agree to the $150,000 with down payment assistance. Nehemiah now provides you with documentation that qualifies for your 3% down payment requirement, and the remaining three percent can be used towards your closing costs on the mortgage.

There is no 103% mortgage here.

If you look at the sticky in the top portion of the Mortgage Forum, Charles posted several resources that can provide down payment assistance, and you can pick the one that fits you best. Some may no longer be active, as one poster updated the thread, because until last month, there was much speculation as to whether or not these were legal "non profits." The tax man came chasing them down, and evidently, there were a few casualties.

[jq26]

amortgageman: the net selling price is 6% more than it would have been had the 6% DPA from the seller just been used to reduce the selling price? If I am reading this correctly, the spread is just being applied to the DPA instead of just coming off the top. So the total price paid is stil inflated based on the net sale price (not the price listed on the deed). Still useful for some folks, but still just semantics. It may say %100ltv, but the value of the home is just inflated a bit.

The home I purchased was 195k with a 8k seller's assist. The net price was $187. The deed states $195. I "paid" for the assist with an inflated deed price.

[Coming Clean]

amortgageman: the net selling price is 6% more than it would have been had the 6% DPA from the seller just been used to reduce the selling price? If I am reading this correctly, the spread is just being applied to the DPA instead of just coming off the top. So the total price paid is stil inflated based on the net sale price (not the price listed on the deed). Still useful for some folks, but still just semantics. It may say %100ltv, but the value of the home is just inflated a bit.

The home I purchased was 195k with a 8k seller's assist. The net price was $187. The deed states $195. I "paid" for the assist with an inflated deed price.

Thank you jq26, this is exactly what I'm trying to find out. Am I utimately paying more???

In your example amortgageman:

"Let's say you find a home that you want to purchase listed for $150,000. When you put in your offer you may ask for $145,000 purchase priceand seller agrees to provide 6% down payment assistance through Nehemiah Corp. The seller may counteroffer with $150,000 and agree to the down payment assistance, or not. It really depends on the seller, and how much they are willing to compromise. If you are needing DPA, then this will be your sticking point, otherwise, you go to the next home.

Now let's say you accept their counteroffer, and agree to the $150,000 with down payment assistance. Nehemiah now provides you with documentation that qualifies for your 3% down payment requirement, and the remaining three percent can be used towards your closing costs on the mortgage."

I am still confused as to what my final mortgage number is. If I except the final $150,000 and Nehemiah's 6%, when I sit down at closing what is my loan balance. Is it $145,500 (after 3%) or is it $154,500 (with 3%). Or am I totally missing it.

It's not that I need a DAP, but I'm trying to determine if it will benefit me to get one.

Thanks everybody for your input.

I have another question about dealing with a stubborn builder, but I'll start another thread for that.

"

[LVMortgageMom]

The problem with usig DPA programs like Hart, AmeriDream, and Nehimiah is that the market may not be able to support the increased sales price. A few years ago, an inflated sales prices was sustainable, however, today you are finding that home values have fallen so much that the appraisals don't justify the sale prices.

Amortgageman makes a very good point in that the borrowers that qualify for these mortgages have been deemed otherwise qualifyable. They have the income, satisfactory credit histories, and reserves.

[jq26]

I don't think there is any benefit by using the assistance. It comes from somewhere, and if the seller is willing to make an assistance (via the 3rd party assistance programs), then you might as well just reduce the price of the home by that amount. That way, you pay a bit less on the transfer tax and other fees that are related to the price of the home stated on the deed.

[LVMortgageMom]

I don't think there is any benefit by using the assistance. It comes from somewhere, and if the seller is willing to make an assistance (via the 3rd party assistance programs), then you might as well just reduce the price of the home by that amount. That way, you pay a bit less on the transfer tax and other fees that are related to the price of the home stated on the deed.

The problem with this is that the loan still has downpayment requirements. So whether the sales price is 100k or 105k, the buyer still has to produce 3% of the sales price (assuming we are talking about FHA loans). So, if the buyer had enough to cover closing cost, but not the downpayment portion, then a DAP may suffice. If the buyer has no funds for closing, then a 103% program will probably be more beneficial. In truth, I think the 103% works in either case. You get a below market, sometimes, silent 2nd. Which means as long as you keep the property as your primary residence, then you don't make a payment on the 2nd and if you stay in your home for a set amount of time, usually between 10 and 20 years, you don't have to repay it all.

[jq26]

LV, I totally agree with you. The OP stated that they had a sufficient down payment. They just wanted to know if they were losing out by not using down payment assistance. The nature of these things seem to be less of a cash gift and more of just an "accounting" tool and probably not worth it unless a down payment is required and the borrower is short.

[JustaTexan]

I have an FHA loan and used downpayment assistance. The only upfront money I put towards my home was an termite inspection and the $500 check for "good faith money." And I got the $500 back at closing. Somehow my mortgage guy wrote the contract to where I would get that back. I purchased my home for 67k. It appraised for 74,500. With the 3% downpayment and closing costs rolled in, my total loan amount was 71,931. I don't know exactly how it worked, but I remember there was wiring of money involved on the day of the closing. I still have all of my paperwork of course but can't remember the exact name of the gift program. I know that I did pay a fee for this gift program.

I would consider it worth it. I'm now a homeowner and love it. Yes unforseen expenses have come up and they can be hard to handle with my income but I do okay. Of course I did not purchase the highest amount of home that I was approved for either. I knew what I could afford and was satisfied with only that. Some people aren't.

[Moneedshelp]

good info

[oompaloompa]

Programs of this type (seller sponsored assistance) are cash substitutes. By using them you can get the lender to make 100% financing with no extra cost other than an increased amount They are indeed somewhat of a negotiating deadweight, as the seller is sometimes ignorant or unwilling to make it happen, even at an increased sales price as compensation. So if you have the downpayment, by all means put it down for this will give you a sharper bargaining edge and ultimately a lower overall cost.

There is a whole slew of county, city state and private downpayment assistance that is either made as a true gift or as a deferred grant with a very low rate. Most of these however have strict income limits, and most loan programs require a down payment. Most first time home buyers have a small down payment saved or none at all, and thus these programs still serve a purpose.

[lostindebtinVT]

When lending I put my clients though FHA with Ameridream Charity 3% downpayment. The seller contributes the 3% plus a $500 fee to Ameridream Charity at closing, the Charity then provides the downpayment at closing (all a paper trail). The buyer can also negotiate that the seller pay their closing costs. So let's say a buyer see's a house for $100,000 - so they offer $107,000 - so $3710 goes to the Ameridream Charity and $3,290 is used for closing costs, prepaids and escrows and the seller walks with $100,000 - so technically the buyer financed all costs legally.

Since Fannie Mae and Freddie Mac have given up 100% financing, the only programs left at 100% are government programs such as FHA with DPA, VA and Rural Development.

[JustaTexan]

I have an FHA loan and used downpayment assistance. The only upfront money I put towards my home was an termite inspection and the $500 check for "good faith money." And I got the $500 back at closing. Somehow my mortgage guy wrote the contract to where I would get that back. I purchased my home for 67k. It appraised for 74,500

Wanted to add that this whole deal depended on the appraisal. My home had to appraise for my loan amount, which was 71,931. The actual sales price was 67k. But with all my stuff added in it was almost 5 grand more. If my home would not have appraised at atleast 71,931, the deal would not have gone through.

[Champion80]

Good info everyone. Looks like there it may be worth looking into. I am going to contact some of these programs on Monday.

I have not gotten pre-approved yet, I am getting my paperwork together now. I am probably going to go FHA and 3% down, which I do have. I am hoping I can get all closing costs taken care of.

The home price is going to end up somewhere around $225,000 and I was hoping to keep the money I saved so I have at least 6 months of emergency cushion in the bank. Those of you that did successfully get assistance, how long did it take to get approved? I do see for the most part once you are approved, they wire the money near closing. But my apartment lease is up on June 30th so I was hoping to close by that day. That means I need to get my loan pre-approved, make my offer and hopefully start escrow within a week or so.

What hurdles getting assistance my I run into, and do you have any advice to handle them based on your experience. Any thoughts are appreciated,

[firstsource]

The traditional down-payment assisstance programs don't require any approval from anyone, as the funds come from the seller. You should find out what the standard closing costs, including everything-Home Owners Insurance-prepaid Interest-etc will be and ask for that amount from the seller also, in the form of closing cost concessions.

As has been previously mentioned, you are actually financing those costs. If the seller did not have to give you concessions, they probably would lower the price of the home. There is no such thing as free lunch...

I agree with you to keep as much cash as you can as reserves. There are a lot of things that you will want to or will need to purchase when you move into your new home. Fixing the little things like the ugly colors of the rooms and the wierd pattern of the drapes can REALLY add up.

Charles