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Down Payment Assistance and FHA
FHA Home Loan Services provides down payment assistance loans for first time homebuyers for reduced closing cost that increase the savings for new homeowners. Unfortunately the high loan default rates and increased foreclosures have hindered government and lender paid mortgage loans. Hopefully as our market turns and the housing sector recovers, there will be more down-payment assistance programs that come back to life.
FHA down payment assistance programs (DAPs) are loan programs designed to assist first-time home buyers with the down payment and closing costs required by the FHA loan program. These programs are typically broken into two types: the 501 (c) (3) non-profit organizations or county-, city- or state-backed down payment assistance programs. The 501 (c) (3) non-profit down payment assistance programs typically require the assistance of the home seller in order for the buyer to take advantage of the program. County-, city- and state-backed DPAs 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.
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While the nonprofit down payment assistance program route is now about to be closed off, you can still get down payment assistance from family, employers, charitable organizations and government entities. For example, following are some California down payment assistance programs you can still use:
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
If you are a cash-strapped buyer needing down payment assistance, now is the time to get it. After October 1st, seller-funded down payment assistance programs like AmeriDream and Nehemiah are no longer allowed for FHA home mortgages. After October 1st, you will need to either save the required 3.5% down payment (now required by the new housing laws) or go to your family, employer, church or a county/city/state-backed program. Our lenders may be able to help direct you to down payment assistance resources. Fill out the free loan quote form to see if you can qualify for a low-interest FHA loan.
You Can Still Get Down Payment Assistance
The only down payment assistance programs that are being phased out are the non-profit ones because they are typically funded by sellers. Here is why these programs are being phased out by the Housing and Urban Development (HUD) Federal Housing Administration (FHA) on October 1, 2008:
"The problem is that assistance ends up added to purchase prices," said Richard Hager, a Mercer Island appraiser who teaches anti-fraud classes.
The Federal Housing Commissioner Brian Montgomery says, "These contributions often function as an incentive to purchase the home. But these gifts are ultimately paid for by the borrower through a higher mortgage amount. The home buyers are often unaware that the 'gift' is something they end up paying for and is not a 'gift' at all."
In a ruling last year, the IRS went so far as to call the seller-financed programs "scams," accusing the charities of inflating home prices. "Down payment assistance programs administered by charities have unfortunately been an area where my investigations and the IRS have found a great deal of abuse," said Sen. Charles E. Grassley (R-Iowa), who has pushed for changes.
According to the FHA, buyers who use these programs are more likely than other FHA borrowers to default on their mortgages. A Government Accountability Office (GAO) analysis found that, holding other variables constant, delinquencies among loans with seller-funded assistance were about 1.85 times as high as those among loans with assistance from other sources and 2.5 times as high as FHA loans without assistance.