While legislation has made many home buyer program obsolete, there are still many programs out there.
I have an article in the MAREI newsletter coming out this week that lists many of the home buyer programs, but I wanted to blog a bit about them as I have recently had some experiences with a few of them and wanted to share.
FHA, by far the best program. And it is not really some special program, but a loan that is backed by the Federal Government that allows people with so so credit and very little if any money to put down to purchase a home. The down payment is low - 3.5%, the closing costs are not too high and can be paid by the seller, and the interest rate is one of the lowest a home buyer can receive. I have also heard that these are assumable loans, although I am not sure the details on this fact.
The only drawback I can find as a seller when working with FHA is the requriement that I needed to have owned the home for a period of time and I many not have owned it all that long. And the appraisals can some times be rough so I am told, needing 2nd appraisals, and back up opinions, and reasoning with the appraiser. But, knock on wood, this has not been a problem for us so far.
Our most recent home we closed, had the buyer using the NACA program. This is program comes with education for the buyer, a great loan so they say, and allows the seller to buy down the interest rate on the home. So for example, we had a home we were willing to sell for a net of about $120,000, the buyer wanted a $20,000 gift to buy down the rate (so NACA told her she needed), so we wrote the contract for $140,000. NACA's inspectors inspected and a home inspector inspected and we made the needed repairs, they inspected again, they appraised it and it closed. From the lender side of the transaction everything went fairly smooth. The inspections were a little vague so we were not quite sure what to fix and some of the things they wanted fixed made no sense, but the program did get the buyer in with an interest rate of less than 1%.
I have not worked the numbers on this one from the buyer's perspective, but I have to think that raising her purchase price by $20,000 so the seller could pay $20,000 to buy down her interest rate has to be not in her best interests. Her principle balance is $20,000 higher over 30 years than it would normally be, raising her payment. Yes that is offset by lower interest, but interest payments are tax deductible and principle payments are not. I don't quite have the technology to figure out if she would have been better off with out the buy down, maybe someone reading this post will be able to figure it out for me.
The last program we are dealing with is the Kansas City Dream Home. The buyer is preapproved FHA and for the Dream Home Program and has their money with the dream home program reserved. Supposedly all they have to do is find the house, get everything approved for the FHA loan, and then get the home to pass inspection, they send all the paperwork to the Kansas City Dream Home Program people, they approve everything and 8 days later, it closes. The program is a forgivable loan for downpayment and closing costs.
Unfortunalty in this case everything has been ready and waiting for the Dream Home people to make the final approval for over a month. If you are a seller and the buyer is using this program, I would have to say run the other way as fast as you can. My thought is that they have no money for the buyer, even though it is supposed to be reserved based on when they get pre-approved. Their web site says that they are out of funding for now, so not sure whats up - I guess we need to find a need find a new buyer - so if you know anyone looking for a 3 bed 1 1/2 bath home west of the Plaza in Kansas City, give me a call.
What home buyer programs have you worked with? Are they still lending? Are they tough to deal with? Please reply back.
On Tuesday January 12th, Mid-America Association of Real Estate Investors will be hosting their January General Meeting and discussing financing and home buyer programs for owner occpant buyers. Bring your programs and questions to the meeting to share. More information at www.MAREInet.com
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