"Money given as a gift for a down payment can't come from anyone."  I hope you meant this to read CAN and not CAN'T.

Donna, I did not mean CAN.  In fact, the grant money has to come from a party that has interest in the transaction.  It cannot come from just anyone.  Thanks for the question/comment!

David, I am aware of this program, but have not used it.  I am a little concerned with the legitmacy of the program itself.  That could also be because I am unclear of all the details.  Thanks for the comment!

David, I've never heard of that.  I've had clients in the past get gift letters from friends or from co-workers who were able to give the gift.  How does a parent have interest in the property more than a co-worker?  Neither one are part of the actual loan.

Donna, I have never gotten a letter through that was from a co-worker unless it's a relative...parents, yes because it is their child and there is a specific interest in getting them a home.

David, thanks for the information!  I will have to check out your website!

David, I checked out your website and this "program" you speak of. It seems a little hokey to me, and just another bad idea for potential homebuyers that probably should not be buying a home. If you can't save up some money for a down payment, you have no business buying a house. from my experiences if you can't save any money in your current situation, you are not in the financial position to purchase a house. People need to realize sometimes it's not in their best interest to purchase a house.(hence the situation the real estate market it is right now; hokey programs for people who should not have been buying houses!)

Looking quickly at your website it does not seem very clear of where all the money is going and what the "membership" is. As an appraiser i am concerned about the appraisal value which must be significantly higher than the actual sales price. I believe this would instigate inflated appraisals, undisclosed "concessions" although you note these are not actually seller concessions. Everything just looks to me to be a little hokey, I would advise anyone looking into this to discuss it thoroughly with their attorney. Your company should advise customers to discuss the terms with their attorney.

If it sounds too good to be true, it probably is!

I don't think I fully understand the process, where the money is actually going, and how it helps enhance the value of the house. If it appraises out at $250,000 then the seller should be able to get at least close to that value, if it is a valid appraisal taking into consideration the current market. Now the sales price says $250,000 but in reality the open market is only willing to pay $225,000. Now if an appraiser were to use this sale as a future comp he would be using the $250,000 "sales price" when in reality the market price paid was $225,000...this now artificially inflates market prices and may lead to inflated appraisals on other houses in the neighborhood (these folks in the neighborhood may now be refinancing at the $250,000 range when in fact it should be closer to $225,000) In no way does it actually enhance the value of this house. The real buyers were not willing to pay $250,000 of their own money.

My other misunderstanding is in what this "membership" is. I briefly read through your webpage and found no information on what the membership really is....maybe if I understood that a little better I could better understand where that $25,000 went and what it does for the house value and enhancing it.

Your program may be helpful, I would like for you to fully explain it to me. I'm not saying I don't like it, I just don't fully understand it and I believe it is because the answers are not clear from your website. If it truly helps people in the end then more power to you. It doesn't sound like something I would recommend to a friend at this point, but hopefully you can reply and change my position on this.

Thanks David, Merry Christmas to you as well. So I guess the key is finding someone who is willing to sell below fair market value. As an appraiser, I still see red flags, and see potential for inflated appraisals to make the numbers work, but I'll take your word for the purpose oif this conversation. I don't know if I'm convinced, but it makes more sense to me, thanks for taking the time; I'll have to look into the benefits when I have more time.

 Happy Holidays

Shane

I would love to join your Yahoo group and express my concerns and let you know what I think from my appraisal perspective. Little crazy right now, but after the New Years I will look into it! Talk to you soon.

Shane

Andrew...  Donna points this out... Money given as a gift for a down payment can't come from anyone.  And it's still not corrected. Besides, in your next paragraph, you mention this. For many loan programs, a gift may be used for a portion or all of the required down payment.  This is semi misleading in my opinion. Most loan programs are very strict on how a gift is used and how much you need out of pocket first before you give a gift. The only program that allows for a 100% gift is FHA. Other than that, you need a certain percentage of your own money before you can get a gift, unless you put 20% down on a conventional deal in order to not state how much of a gift you did get. Meaning, you could get the full down payment as a gift, but you need 20% down. I just had to point this out, because if I was a consumer, I would take it much differently.

In regards to David Hayes program, you really need to understand it on how it works to understand that you are inflating values just as any other gift program.  You are basically trying to make it appealing to all parties, when in reality, when you crunch the numbers, it can hurt the buyers. Remember, money is not for nothing or free in any of these cases. It comes with a cost. I will leave the rest of this alone, because I actually know how this program works and in my opinion, I don't care for it.

Jeff - Thanks for the comment.  I left that uncorrected because a gift cannot come from just anyone.  The person giving the gift has to have an interest in the client and/or property.  At least that has been my understanding of it for quite some time.  Joe down the street who I just met cannot give me a gift for downpayment on a house.  Please feel free to correct me if I am wrong.

With regard to the loan programs that are allowing the gifts, etc...there have been significant changes in the marketplace since this blog was published so I apologize about that.  You are right on the money when you said that FHA is the only program right now that will allow 100% gift.  Each investor/bank is extremely touchy right now on the subject of gift funds, and should be dealt with on an individual case by case basis.  That being said, I can only hope that the Loan Officer a client chooses to work with knows their stuff and knows how gifts works with the various investors.

Thanks, again, Jeff for the reply comment, and I definitely look forward to your response!

Great read here...   I too have usually come across the situation of gift funds being allowed but only after the inital 3 or 5% borrower's own funds have been used.  Depending on the loan program.

An owner-occupant borrower can use funds received as a personal gift from a relative, domestic partner, fiancé, or fiancée to pay part of the closing costs or to supplement his or her financial reserves. The borrower generally must use his or her own funds to make the required minimum cash down payment, although that down payment can be supplemented with a gift from a relative, domestic partner, fiancé, or fiancée.

For both FNMA and FHLMC, the property must be a primary residence or second home in order to use any gift funds; neither allows gift funds on an investment property.

The lender must verify that sufficient funds to cover the gift are either in the borrower's account or have been transferred to the borrower's account.   FHLMC does not require verification of donor's availability of funds.

Definition of "Relative"-The borrower's spouse, child, or other dependent or any other individual who is related to the borrower by blood, marriage, adoption or legal guardianship.

Andrew,

What do you think about a farm tractor, or a truck for a down payment?  Would a lender go for something like that?

GR

Robert - First of all, thanks for the comment!  I have stretched these down payment options to people that aren't related (employers, etc).  But, like I said in my response to Jeff it just cannot be some random person they just met.  Great work on the response, and I definitely look forward to more!

Until then, I will look for you on my other Loan Officer Training blog.

GR - Quite honestly, I have never used collateral like that for a down payment or collateral for a down payment.  In today's market, I don't think that a lender/investor would accept something like that, but that is just what my market is giving right now.  I hope this helps, but please ask more questions if you have them!