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Positive Spin on Down Payment Assistance Programs Gloom

Hud has been playing the Grim Reaper on the Down Payment Assistance Programs lately.

As most are aware the Down Payment Assistance Programs has helped many homeowners in the past acquiring down payment assistance for government loans that required a minimum of 3% down.

Recently HUD has made it clear that the Ban will take place on October 1st 2008 eliminating DAP's.

Another change taking place is the increase from the minimum 3% down payment required to ---> 3.5% now.

The increase also will start on October 1st 2008.

The Ticking Time Bomb

Now nothing is set in stone and there are still many support groups out there for the DAP programs.

President and council could very well make some changes or have replacement programs in effect before the deadline.

Instead of Doom and Glooming over this very unfortunate event, lets think about solutions and not focus on negativity.

The Solutions

Again as stated, nobody has a crystal ball and can possibly see what new changes will be in effect by October 1st 2008.

Here are a few POSITIVE friendly reminders

GIFTS will still be allowed to help with down payment assistance from a "Close Relationship" not necessarily coming from family which can be derived from employers or close friends even. Check with your local Mortgage Expert

Non-Occupying Co-Borrowers can still help clients with getting an FHA loan. Having a Co-signer can help significantly and help overcome debt to income issues and even help out with down payment.

VHDA 103% Plus Programs are still the true no money down loans. This program is only available for certain limited household incomes in each area. Again check with your local Mortgage Expert for the income caps in your area. 103% financing says it all :)

VA mortgages are still 100%. Active duty or veterans still have a great opportunity in bypassing down-payment requirements. Please take advantage of these programs if eligible.

Security and Peace of Mind now the flip side to the ban of DAPS is that there will be a greater promotion and awareness for new homeowners to start getting in the habit of saving up again for down payment funds and most times causes laziness and sloppiness of budgeting when nothing is invested in the new home. People were accustomed before with 20% down and no DAP's, shouldn't be that of a change now, just my opinion.

In closing, yes we can all moan about this and become Negative Nancys about the changes, but this is life and life is all about changes, its about how we learn to adapt to changes that makes us successful :)

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Posted by Justin Williams - Loan Officer on 07/29/2008 07:56 PM

Comments (16)

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16 Comments on Positive Spin on Down Payment Assistance Programs Gloom

JUL

2008

...of course we will adapt, but it is a bummer for the first time home buyers. What is VHDA?

Justin....you have me all the way to this point.....

Security and Peace of Mind now the flip side to the ban of DAPS is that there will be a greater promotion and awareness for new homeowners to start getting in the habit of saving up again for down payment funds and most times causes laziness and sloppiness of budgeting when nothing is invested in the new home. Think about it ;

As a mortgage planner for the past 12 years I understand that the reason people do not pay their mortgage is one thing...LACK OF CASH FLOW....so if you use up their entire savings for the down, that leaves little for future payments. If they don't also tighten down on DU and LP approvals for debt ratio's then some of these borrowers that save and scrimp could be even in worse shape then if they benefited from a DPA.

If I was HUD, I'd change the current DPA reg's, but I'd suggest that a DPA is legal as long as the borrower has 3.5% of the DPA funds in a reserve account in their name, that has been seasoned for 2 to 4 months. Sure people can get around this with gift funds from family, but the bank then knows that they have the ability to borrow the money if they get behind from families and friends. HUD also needs to tighten down the screws on the DTI..if they'd really keep things below 42% back end, like they do for manuel underwrites, then you'd see less pressure on the borrower after they close their loan.

One other option for the borrower would be to create a HUD reserve account. The borrower would deposit 3 months payments in a reserve account with the bank. Almost like a secured credit card. The bank could invest it in a 3 to 5 year CD and it would grow as any other CD and only be available to draw down on if the client claims a hardship, such as loss of job, and then the bank would draw out the next mortgage payment from this fund. It would look good for the bank in terms of asset reserves, and it would be good for the borrower. This really isn't that difficult, but it takes experts that have been in the business for years and not "NO NOTHING" idiot politicians and their gready bank lobbyists!

@ Missy - Yes very sad indeed but I like looking at the positive side of things :) VHDA is Virginia Housing Development Authority, its our state mortgage finance agency. Definitely check with your state about your own local agency :)

@ Karl - Hey don't sweat it, everyone has their own opinions and I welcome feedback. Well to be honest here Karl, I am not PRO-Ban on DAPS. I love DAPS and I am sad to see them go.

Many points you have pointed out are very true in which makes the DAP programs very successful but the point I was trying to make is that once its official theres nothing more to it and I was just saying as a bright side to things it does help educate and help start building healthy habits in saving and goals.

I mean people used to save up to 20% down before and nowadays only having 3.5% down is not that bad....besides I have a pretty strong feeling conventional loans will start finding alternatives in 100% financing again, so all is not lost, the main point is just finding the positves to things :)

We have one, MSHDA, thanks !

@ Missy - Your Welcome :)

I think the down payment assistance programs where great. Hopefully they come up with some other options to counter this loss.

JUL

2008

it isn't helping homebuyers at all but great points that there are still some options out there...it will be more difficult though to get some buyers approved now.

Justin - you are so right...it's not doom and gloom. I envision employer driven "gift" programs in the future - maybe matching funds????? FHA is a great product and requiring borrowers to put a little bit down should be expected.

Tina in Virginia

Sorry to throw water on everyone's postive thinking parade, but this is not just a minor bump in the road. What it means is that "new home buyers" are going to find it allot more difficult to get a loan. This does help landlords though, and if your going to find a silver lining, then it's time to warm up your investment borrowers and buyers, because now's a great time to own first time home owner type residences.

I find it hard to get excited when government jumps in and messes things up. We're always supposed to grin and bear it, or we hear about how we should stay positive. The problem is when a bill is bad and will have a negative effect on future business, why is it such a bad thing to admit it. Frankly the only way to change it at this point is to convince enough of you how horrible this admendment was to this bill and get it changed. Actually that is possible if we work at it.

People got loans before the DAP's came along and someone will find a way around it again.

@ Chuck lets hope so buddy!

@ Naoma sure will, I can't argue you with you there!!

@ Tina FHA's are great products and I have faith that everything will work out thanks!

@ Karl its cool, like I said earlier I appreciate feedback and not everyone has taken kindly to Bush signing the new bill this morning. I think its very justifyable to vent about the changes but we have to remember the bottom line is that people have bought houses before without them and will once again now. thanks for commenting.

JUL

2008

Hey Justin! I was following the news real closely. It's a shame that the DAPs are going away, but if I'm not mistaken, down payment assitance cant still be sued as long as it's not "SELLER FUNDED". In other words, can't churches, synogogues, mosques, etc. can't assist with down payment as long as it's not seller funded? Also, don't forget some counties and cities have special programs to help with down payment and closing costs. I don't think those are outlawed are they?

@ Gene - Exactly! Thanks for stopping by

@ James - Hey Bud, You hit it right on the head, the ban is only for Seller Assisted funds so you are right about getting help from non profit agencies directly to the buyer but can no longer come from the Seller. There are still PLENTY of programs that are locally sponsored by the government in your area as mention in my post with VHDA is a local State Agency program :) Thanks for the insightful feedback James!

AUG

2008

I wonder if the new proposed legislation to re-instate DPA will have teeth. I can imagine the legislators phones are still ringing on this one.

The challenge with the DPA programs that are left are staying with in the lowerincome guidelines. We used the seller paid DPA programs to assist those buyers who exceeded the income limits.

AUG

2008

@ Chuck - Yeah the Risk Based Pricing DPA's seem to be the one they are shooting for wellll seeeee.

@ Chris - Right Right, thanks for commenting!

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