Over the past five years government sponsored loans, "govies" as they are more commonly termedly waned.  The reasons of course are that the investor world created programs/guidelines that dummed down the mortgage professional.   It became commonplace for a bartender to create a feeble web site (at best) that gave opportunity for the uneducated consumer the ability to apply for a mortgage loan and get approved with almost no oversight from the traditional underwriting community.

Well that has all changed and now 100% financing programs are almost non-existant and certainly gone are the no-brainer loans.  Popular full document underwritten programs such as My Community, Flex 100 are tightening.  I would even go so far as to suggest that My Community could disappear or at least be liberally revamped to the very conservative bent by mid 2008.  Today, with a credit score over 700 and some assets I have seen back ratio's up to 64% approved.  Wow, did the loan officer tell the approved homebuyer to seriously adjust withholding to increase takehome pay?

Created by Congress in 1934, the FHA became part of HUD (Housing and Urban Developemnt) in 1965.  FHA insures private residential loans for new and existing housing.  The basics of the loan are that the approved buyer put.s down 3.00% and FHA will issue a loan for 97% of the purchase price.  Included and required by FHA is that each borrower must also buy mortgage insurance to guarantee the loan should the borrower default.  The beauty of this loan is that underwriting guidelines are fairly strict and have always performed well.  The problem with a 3% down loan in today's market is that not many folks have 3% to put down.  (That's another issue).

Well along come down payment assistance groups.  Essentially, non-profit groups that will supply the needed down payment.  Two vey well know groups are Nehemiah, Inc and Ameridream, Inc.  Both firms have been around since 1997 and 1999 respectively.  These groups provide a  much needed affordable solution for needy families that qualify for a FHA loan but lack the down payment.  How this program works is:  The seller of a home agrees to a charitab;e donation of say 6%.  This contribution will go to the non-profit group at settlement on the HUD-1.  This is all arranged via gift letter from the seller.  The day of settlement the non-profit group ensures to have the appropriate funds wired to the escrow company for the down payment and closing costs.  Essentially this takes the FHA loan and is really converting it to a 100% finance program for the buyer.  The buyer must realize though that to make this work for the seller the buyer should be offering market price for the home.  The seller must also realize that they will not be able to take a charitable deduction for the contribution because thay are receiving in return something of value...need I say more.  A tax advisor can confirm this.

 As more lenders re-discover the non-profit groups and study FHA guidelines they will have a product of value to offer the real estate professional so that they can garner another segment of the purchase world.  Will this help jumpstart the Northern Virginia market?  It can only help!  Need help understanding how FHA can help round your world?  Call me, 703-444-6407 or contact me by email at keith.raggio@suntrust.com