What are down-payment assistance programs?
Downpayment assistance programs enlist the participation
of nonprofit organizations in a bid to help low-income families
cover the costs of a down payment (along with, in some cases,
closing costs and other upfront cash requirements). Today,
nearly one in five borrowers whose mortgage is insured by
the Federal Housing Administration (the largest insurer of
mortgages in the U.S.) makes use of a down-payment assistance
program.
The most prominent of the nonprofit organizations that facilitate these transactions
are The Nehemiah Program, AmeriDream Inc. and Partners
In Charity.
How do they work?
In simple terms, a downpayment assistance program involves
having a home seller provide a home buyer with cash for a
down payment. By taking part in this program, a seller can
potentially attract a larger number of home buyers to his
or her property. But it's a bit more complicated than that.
Because a federal housing regulation prohibits a seller from
directly giving a buyer down-payment money, a third party
must be involved. These are the administrators of down-payment
assistance programs.
They oversee the transfer of money from the seller to the nonprofit organization.
In turn, the organization gives the home buyer a similar amount for the down
payment on the home (the nonprofit takes a piece of the deal through a percentage
of the transaction -- typically one percent -- or a flat fee). The gift is treated
as a down payment. The buyer has no part in the transfer of funds, and he or
she is not required to pay it back.
Downpayments covered by these programs generally fall in
the range of three percent to six percent of the home's selling
cost.
Too good to be true?
There are some excellent down-payment assistant programs. There are also some
dubious ones. It's important to confirm that the nonprofit organization with
which you're dealing is of the former variety before making any commitments.
A good first step is to restrict your dealings to nonprofits that belong to the
Home Gift Providers Association (HGPA). The HGPA members are required to adhere
to a prescribed set of best practices and a code of ethics. HGPA's website includes
a list of member companies.
It's also wise to sniff out unsavory down-payment assistance providers with a
demanding list of questions. Ask each for a record of its financial stability.
Ask about partnerships it enjoys with community organizations and businesses.
Ask if it ever endorses the practice of allowing borrowers to use their down-payment
gifts to pay off bad debts, judgments or liens in order that they might qualify
for loans (HGPA discourages this). And stay alert to any sign that the nonprofit
is giving kickbacks to real estate agents, mortgage brokers or anyone else involved
in the mortgage transaction.
DownPayment Assistance
Programs (DAPS)
are loan programs designed to assist first-time home buyers
with the required down payment and closing costs required
by the FHA loan program.
These types of downpayment assistance
programs are typically broken into two types of loan programs.
These are the 501 (c) (3) Non-Profit organizations or county,
city, state backed down payment assistance programs.
The 501 (c) (3) non-profit downpayment
assistance programs will typically require the assistance
of the home seller in order for the buyer to take advantage
of the program. Following is a list of just some of the available
down payment assistance programs offered by non-profit organizations.
- Nehemiah -
Grants up to 10% towards down payment.
- HART - Grants up
to $15,000 towards down payment and closing costs.
- Neighborhood Gold -
Grants up to 20%, includes Mortgage Payment Protection
The above programs
typically do not have a repayment schedule nor is there
a second mortgage required. These gift contributions
are paid by the seller.
The
State, County, and City backed Down Payment Assistance
programs are typically secured by a second mortgage.
Some of these second mortgages may be "silent" meaning there is no payments
required initially and some of the programs forgive the
loan after 10-20 years of living in the home. Following
is a list of some of these programs available:
- CHDAP - 3%
second mortgage for your down payment.
- CHFA Loans (CHAFA) - California
backed program allowing buyers 100% financing.
- Access 2000 - No
money down program for California.
All of these types
of down payment assistance programs use a FHA loan. Since
you must be able to obtain FHA financing in order to use
any of these programs, learn more about FHA
Loan Qualifying. |
FHA Loan Categories 
