For many of us, especially first time home buyers, the most difficult part of buying a home was scraping together the money for the down payment. With house prices a bit lower now than they've been for the last few years, it is a great time to buy a house, if you're currently a renter. But that old down payment issue keeps rearing it's ugly noggin. There are, however, some ways you can get down payment assistance that will pay all or part of the down payment on your new house for you.If you are looking to make the leap into home ownership, and are a bit savings challenged, here are a few down payment assistance solutions you can look into. It might be just what you need to finally get a house of your own.
For all you home sellers out there, just dying on the vine because your house hasn't sold, especially if you bought a new house before you sold your old one, these could be a tool you can use to help market your house. It might be the one thing that helps you get out from under that old house and all its expenses.
Get Downpayment Assistance From a Charity No, I don't mean call up the Red Cross or the American Cancer Society and ask them for a handout. It works more like this; a 501(c)(3) non profit organization or charity gets a contribution for the amount of the down payment, which they then transfer to the seller. The contributor gets a tax deduction for the contribution and the charity pockets a service fee. You get your down payment. What a deal! No doubt.
As with anything that seems too good to be true, there are some problems with the arrangement, namely for the IRS, who hates to let some good tax dollars go to waste. In 2006 they published a notice with the intent of removing the tax exempt status of 501 (3)(c)s who's primary activity was to move money from sellers to buyers in order to facilitate real estate transactions. Shortly thereafter HUD followed suit, releasing a proposed rule that would forbid the use of this process for the purchase of FHA properties.
Ah, but not so fast! The HUD rule only states that if you use an FHA loan, you cannot use down payment assistance if seller financed organizations are the source of the money. You can still use this method if you are not using a FHA financing or if you use a non profit, or charity organization who's chief function does not entail financing down payments using money from sellers.
In addition, in October of last year, the DC U.S. District Court denied HUD from prohibiting the seller financed transactions until such time as they can further review HUD's rationale for their decision. The Court basically said they felt HUD didn't do their due diligence before issuing they made the ruling. One important note here. One of the reasons HUD made their ruling in the first place is that in their opinion, such financial sorcery artificially inflates the selling price of the home, costing the buyers money. This is due to the seller passing along the service fee charged by the charity for the transaction.
That may be true, but numerous organizations in the home buying process pass along fees to one or more of the parties involved. At least it allows people to actually buy a house when they could have otherwise not done so. The problems arise when people buy a house they can not afford, because they have no down payment requirement and they get a mortgage based upon shaky financials (probably not going to happen so much anymore).
The National Association of Realtors is pushing for a 0 down FHA program to be implemented. Their reasoning is that eliminating the down payment requirement will remove the incentive for these assistance organizations. That may be true for homes bought using FHA loans, but what about all the rest? As house prices rise, the problem of obtaining sufficient funds for a down payment is only going to be exacerbated. Thankfully for buyers, they are experiencing a temporary reprieve, as real estate values have declined in many markets. In the long term however, this pricing trend will inevitably reverse itself. Even so, the prospect of a recent college graduate, new to the workforce, plunking down the down payment for a new home can be a bit laughable, when you consider the price of homes in many major cities.
Even at 3%, this can add up, depending on where you land your first job. For example, the average home price (preliminary Q3, 2007) in Indianapolis, Houston, and Omaha was between $125K and $155K. The average college graduate or young family may be able to come up with the $6,000 they'd need to get into a home after all was figured in. However, if you find yourself in Seattle, Boston or Washington DC, you'll find the going a bit tougher, with homes fetching around $415K.
If you've come to the sun of SO Cal, forget it. To get the average priced home in Orange County you'll need $700K, one in L.A. will cost an average of $588K(that factors in the many really bad L.A. neighborhoods, so a nice house will cost more than you'd think), and San Diego brings $589K. Not only can you not even get an FHA loan that big, if you could, you'd need to have almost $20Gs stuffed in a bag, an amount few recent college graduates, or any other workers with young families have a prayer of getting.
Get Downpayment Assistance From the GovernmentSpeaking of Southern California, the Golden State is one of the states that has an Austrian born Governor...wait, wrong post, I mean a state guaranteed, no down payment program for home buyers. California's is known appropriately enough, as the California Homebuyer's Downpayment Assistance Program (CHDAP). As with many such assistance programs, they work by combining an FHA loan and a “silent” second mortgage. Given the state's relative dearth of homes that could possibly qualify for FHA financing, especially in the major metro areas, one might ask about the relevance of such a program, but something is better than nothing. If you live in California, or may be relocating there soon, you can find out more about their program at the California Housing Financing Agency's website.
Washington State has a similar program fro down payment assistance if you are disabled or have a disabled person living with you. It is termed the HomeChoice Second Mortgage Program. One wonders how much money states might save if they stopped hiring marketing consultants to come up with catchy names for state programs. In any case, to learn more about Washington states program, visit the Washington State Housing Finance Commission's website.
Arkansas, a state who's had 2 of the current Presidential candidates reside in it's Governor's Mansion (triple-wide) has such a program too. Theirs is targeted at first time home buyers and is offered by the Arkansas State Development Finance Authority in cooperation with a Federal program, the American Dream Downpayment Initiative (In this case, the Feds hired the marketing consultants), which was originally signed into law by President Bush in 2003. Arkansas' down payment assistance program provides downpayment and closing cost assistance for low income families making 80% or less of the area's median income. See it at the Arkansas Development Finance Authority's web page.
To find out more about the Federal DPA program, check out the American Dream Initiative website.
There you'll find about each state's program that ties in with the ADI. However, many other states have other programs that are not affiliated with the federal program, so take the time to visit your state's housing, and/or finance authority or agency website to find out how to qualify.
