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FHA Money Down Assitance Programs vs 100% financing.... What's the difference?

By Jeff Belonger

Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

May 18, 2007 05:38 AM

bridge

Which side of the fence are you on? I ask this because I just wrote a blog on HUD getting rid of the down payment assistance programs.

Some of the arguments being made is that everyone would be better off with the 100% financing programs, even through HUD/FHA's 100% program. That the DPA's (down payment assistance) programs should be banned.

First off, FHA doesn't have a 100% financing program as of yet, which was mentioned in the previous blog. It still needs to be voted in by the 110th Congress.

Second, FHA does have some things approved, but it's up to Congress to decide. (this link will take you to another blog to continue this discussion)

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Danny Smith

DISCOVER TEXAS HOMES - Round Rock, TX

I think your bridge fell down because the link has an error on it! Neat Bridge though!

However some of those DPA programs are grants that don't have to be paid back. What's wrong with that? I'm for them.

May 18, 2007 06:59 AM

Ron Withers ----Retired Mortgage Professional

Kissimmee, FL

Jeff,

At the end of the day the bottom line is homeownership.....affordable homeownership! I consider myself an expert in down-payment assistance programs (DPA). However, it has probably been 7-10 years since I've done any DPA with Nehemiah, AmeriDream, etc. I am active in State of Florida Housing programs as well as various City/County SHIP programs. Depending on borrower eligibility I can combine these resources and get up to $40,000. Within the past 6 months the Florida program has been modified. Six or so months ago I closed on a purchase with $55,000 in assistance. So you can see that I haven't had much call for these seller-funded DPA programs. Plus, until the past year the Florida Real Estate market hasn't been conducive to seller concessions.

Much of the problem with these seller-funded program also ties to IRS rulings for Not-for Profit. This issue has been on and off for the better part of 10+ years. There is a very fine line (gray area) in the interpretations and rulings. I can see and understand both sides of this issue. In the very literal sense, the seller-funded DPA is a non-arms-length transaction. This is a pass through from seller to Not-for_Profit to the buyer. This being said, is the money really a grant that may be partially tax deductible, particularly when the seller has something to gain? The DPA agencies such as Nehemiah were organized based on a perceived loop-hole in the IRS code.

If the IRS would rewrite the code surrounding Not-for-Profit this problem would probably go away.

Don't get me wrong, I just presenting information and perspective for discussion. I am not advocating one thing or another here......except affordable homeownership for all....in what ever way we can to maximize the opportunity.

May 18, 2007 07:35 AM

Ron Withers ----Retired Mortgage Professional

Kissimmee, FL

Jeff,

Congratulations...Mr FHA Expert! I just noticed that you have your website up. I hope it serves you well.

May 18, 2007 08:02 AM

Gita Bantwal

RE/MAX Centre Realtors - Warwick, PA

REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

The goal of FHA is to promote affordable home ownership and I hope they will do what is best .

May 18, 2007 11:03 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Danny.... I just tried the link and it's working. In regards to the DPA programs that are from Nehemiah, Amerdream, etc etc... don't have to be paid back at all. They are called gifts, And the actual concern is not so much these programs, but that these buyers are putting a dime out of pocket. Which can sometimes make it easier for them to walk away from the house, once they get in trouble. If you put some money into the house, part of it is pride, the other part is that it was your own money... and might not want to lose that kind of money. And this makes sense because of the percentages foreclosures shown in this blog.

Ron.....I agree.... homeownership. Well said... Brian Brady and William Archambault praise this often in their posts and or comments. Sure, there are foreclosures... but just giving people the chance to own. At the end of the year, there are still more new home owners than those that lose their house to a foreclosure. Sounds like you have some great state and county programs in Florida.

And yes.... there is an issue in regards to the IRS rulings and it looks like things might change on this. And you have a good point if they did change this ruling, that we might see less problems.

Thanks for your input and feedback....

And thanks for the congrats in regards to my blog site that I have up in running.

Gita.... of course that is their goal, more so when they first started this. But it's also a business, to where they try to be as competitive as possible with Fannie Mae and Freddie Mac. So.. define affordable.... does that mean strictly low-income housing? Not as much as it use to be. Thanks for stopping by.

May 18, 2007 12:38 PM

Joan Mirantz

Homequest Real Estate - Concord, NH

Realtor, GRI, CBR, SRES - Concord New Hampshire

Now I know where you've been...setting up a new website.

Not bad...we get two for the price of one and you get more hits! Pretty clever!

Hey, whatever happened to the"new continent" assignment?

I did mine!

May 18, 2007 12:52 PM

Robert D. Ashby

Cruise Planners of South Florida - Plantation, FL

Providing Personalized Travel

Jeff,

I don't do FHA, but there is a tremendous benefit for some and losing the DPAs sucks. I sometimes wonder what these people are thinking.

May 18, 2007 12:57 PM

Fran Gatti

RE/MAX Integrity - Medford, OR

Managing Principal Broker - RE/MAX Integrity

Jeff,

I like your new website. Thanks for the post.

Fran

May 18, 2007 04:11 PM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Joan..... well, that part didn't take long... just taking a mini vaca...... In regards to the "new continent" post... I'll get to it this week. In all honesty, it didn't get much attention...maybe a feature? I was hoping to get more involved. I was semi shocked... oh well. Thanks for participating and for stopping by.

Robert.... I always wonder what some of these people think. But as I stated, there are a few bad apples that could ruin it for the rest. We'll just have to wait and see. Besides...it does show who takes responsibility. And I guess, if a buyer doesn't use any of their own money, it's easier for them to throw in the towel.

Fran.... thanks, thanks a lot. And thanks for the compliments.

May 18, 2007 04:44 PM

Thesa Chambers

West + Main - Bend, OR

Principal Broker - Licensed in Oregon

Jeff - as always great information thanks you for sharing - keep up the great work

May 18, 2007 07:21 PM

Danny Smith

DISCOVER TEXAS HOMES - Round Rock, TX

Jeff, strange! I'm on a totally differant computer and system and I get the same thing I did yesterday when I try to open the link on the bridge! I get the following msg. I cut and pasted it!

Error 403 - Forbidden

You tried to access a document for which you don't have privileges.

May 19, 2007 03:22 AM

Ron Withers ----Retired Mortgage Professional

Kissimmee, FL

Jeff,

In reviewing some of my memos provided to Realtors that I work with I ran across a FHA/HUD press release from May 2006 that I had provided to them. I don't know if you have seen/read it but it speaks of those coming changes that has been discussed in our posts/comment exchanges. Below is a cut and paste of this article just in case you or someone else may have missed it.

HUD PROPOSES MODERNIZATION OF FEDERAL HOUSING ADMINISTRATION
Legislative Proposal would increase access to FHA for potential homebuyers

WASHINGTON - In an effort to increase homeownership opportunity for many Americans, the Department of Housing and Urban Development today announced a far-reaching proposal to modernize the Federal Housing Administration (FHA) and make it an important financing option in today's housing market.

Assistant Secretary for Housing- Federal Housing Commissioner Brian D. Montgomery presented the House Subcommittee on Housing and Community Opportunity with the FHA Modernization Act, a legislative proposal that would enable FHA to reach deeper into the pool of prospective borrowers. Many of these borrowers are currently willing to pay subprime rates to become homeowners because they believe they have no other option.

"FHA was created during the Depression to stimulate the housing market at a time when homeownership simply wasn't a reality for most people," said Montgomery. "FHA has been able to help over 33 million families become homeowners since that time, but now it needs to be able to adapt to today's marketplace. A new, modern-era FHA would offer many hard-working Americans a variety of homeownership options that are safer and at a fair price."

The FHA Modernization Act would:

1) Create a new, risk-based insurance premium structure for FHA that would match the premium amount with the credit profile of the borrower . It would replace the current structure, in which there is standard premium amount for all borrowers, while still protecting the soundness of its Insurance Fund. FHA would have the flexibility to charge higher-risk borrowers a slightly higher premium, and to charge a lower premium for low-risk borrowers.

2) Eliminate the current statutory three percent minimum down payment, reducing a significant barrier to homeownership . FHA's existing down payment requirement does not meet the demands of today's marketplace, where most first-time homebuyers put down two percent or less. The "new" FHA would offer a variety of down payment options.

3) Increase and simplify FHA's loan limits . FHA's loan limit in high-cost areas would rise from 87 to 100 percent of the GSE conforming loan limit and in lower-cost areas from 48 to 65 percent of the conforming loan limit. This change is crucial in today's housing market. In many areas of the country, the existing FHA limits are lower than the cost of new construction, eliminating FHA financing as an option for buyers of new homes in those markets. FHA has simply been priced out of the market in other areas, such as California, where FHA insured only about 5,000 home mortgages in all of 2005.

The legislation would also expand the availability of the Home Equity Conversion Mortgage (HECM) program for the elderly by eliminating the cap on the number of these loans that FHA can insure. In addition, a new HECM for Home Purchase product would enable the elderly to move from the family home to housing more suitable for them as they age.

Other proposed reforms would make it easier for FHA to serve purchasers of affordable housing such as manufactured homes and condominiums. FHA would eliminate a feature of its Manufactured Housing program that limits how much a lender can recoup from mortgage defaults, providing greater incentive for lenders to make these loans. The proposal would also increase the loan limits to reflect the real cost of manufactured housing today. The legislation would also eliminate burdensome statutory provisions for insuring condominiums, which serve as one of the primary forms of affordable housing for first-time homebuyers.

HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development as well as enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet at http://www.hud.gov/ and espanol.hud.gov.

May 20, 2007 02:20 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Thesa..... thanks for that polite compliment... and for stopping by.

Danny.... I don't know what to tell you.... ????? Did you ever get me e-mail about Flat James? I never heard back from you.

Ron.... thanks a lot for supply ths information. I guess my only concern and question is if HUD is trying to illuminate the 3% from the borrower, why are they being more stricter on the DPA types of loans? I know it's a little different, but basically the same concept. right? your thoughts and or opinions... again, thanks for the information again....

May 20, 2007 05:18 PM

SHAUN WREN

LICENSE IS NOT PLACED - Lakeland, FL

I am doing more fha loans, Now more than ever.

Jul 10, 2007 09:08 AM

Anonymous

Curtis Thomas

I think DPA programs should be allowed so that when legitimately donated money is being given to a borrower, it can be utilized, but at the same time I think 100% financing should be offered so that there is absolutely no benefit to doing these seller funded DPA deals.

Sep 19, 2007 02:22 AM

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