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Creative FHA financing -- No money out of pocket from the buyer!!! -- Part 1

nehemiah Did someone say no money needed? Yes, no money from the buyer.

There are several non-profit programs out there that allow for some type of assistance to the buyer. Nehemiah is one of the largest non-profit organizations that allows the seller to give money for the down payment and closing costs.

This program is approved by FHA which is part of HUD. Nehemiah can basically get a consumer into their dream home with no money out of pocket. FHA states that you must have 3% of your own money into the deal. And FHA typically asks for 2.25% as your down payment, which is included in the 3% total. This means that you would need to pay an additional 3/4%. But FHA also allows you to receive a 100% gift that can be used for both your down payment and closing costs. This gift can come from either a family member and or a non-profit organization.

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Nehemiah allows for the seller to contribute up to 6% of the purchase price which can be applied towards the buyer's down payment and closing costs as mentioned above. They charge a $499 flat fee for this service. This fee can be paid by the seller, buyer, or even the lender. You can also combine that 6% with the seller contributing another 6% as seller contribution.

What takes place is that the seller gives Nehemiah the money which turns around and gives that money to the buyer as a gift. These gift funds can be for first time home buyers and even repeat buyers. There is no income limitations or geographical restrictions. And the best thing is that you don't even have to repay the money, hence the reason why it's called a gift.

Overall, the only thing that needs to happen is to be approved by your lender for the FHA mortgage and for the seller to contribute the funds. And what is great about FHA is that they allow for 6% seller contribution. Another reason on how you can get into your dream home with no money out of your pocket. Between Nehemiah and the seller contribution, you could be in that house with as little as zero money.

Part 2 is going to go into detail on how a FHA mortgage can work for you and for those with less than perfect credit. And I was inspired by Thesa Chambers because of our conversation the other day to write this post.

Here is Part 2 : Understanding FHA financing.... Part 2 -- Creative Financing & no money down

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Posted by Jeff Belonger-The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans on 04/12/2007 07:19 PM

Comments (70)

Down Payment Assistance Programs in the Mortgage / Finance Channel

fha, first time home buyers, nehemiah, no money out of pocket, zero money down, jeff belonger, gift monies

Originally posted at: FHA Mortgage Expert - Tri-State Area - New Jersey/PA/Delaware: Creative FHA financing -- No money out of pocket from the buyer!!! -- Part 1

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70 Comments on Creative FHA financing -- No money out of pocket from the buyer!!! -- Part 1

APR

2007

Well said Jeff - I hope others will understand that FHA does not truly mean 100% - even if the seller pays in the long run the buyer is paying! - thanks for the honorable mention

Thesa.... another reason why I wanted to bring this up also. There is a person on here that states 100% FHA financing. It's still not 100% financing and people need to understand this. Personally, I feel that is misleading advertising. Thanks for your feedback and my pleasure...

Very interesting.. can't wait for part two.

great post man. it is a great refreasher even for me.

Hi Jeff- Really interesting. Can't wait for Part 2 : )

Heidi.... thanks for the polite words and welcome to Active Rain.

John.... it was actually a refresher for me also. I haven't done one in 7 years. But as it has become a buyers market in many areas now, we might see more of this. I actually have a client that an offer was just accepted with the help of Nehemiah. And thanks for the compliment, coming from another mortgage professional.

Kelli.... thanks for the comment and hoping to get part 2 out late tonight or sometime tomorrow.

There is a similar program here in California. For a lender to be approved all they have to do is attend an 8 hour course and fill out paperwork.

Great blog Jeff clients who read this will be contacting you for help..................

Eddy

Thanks Jeff. You are always right on top of things. It is clear that with the virtual vanishing of the subprimes and lenders moving away from the 107% programs, that FHA will once again become the program of choice for 1st time home buyers. As Congress works on updating the loan limits and tweaks the FHA program overall, this will be pushed even more to the foreground.

Eddy.... what's the name of the program? Nehemiah is a national program. Thanks for stopping by and for the compliment.

Rich..... thanks for that kind statement. The sad thing about your statement is that FHA has always been around. Just so lenders got away from it, because they thought the sub prime programs were easier. But usually higher rates. And I know several lenders that don't even have FHA. We underwrite in-house, which is even a bigger asset.

Congress has been working on a 100% loan, but after what has taken place in the market, not sure if they will come out with it now. It was approved in congress, but they haven't unleashed it as of yet. thanks for stopping by.

FHA is getting more attractive every day. I've notice a substantial increase in clients wanting FHA reports.

APR

2007

I've used Nehemiah and it is a good program for firsttime homebuyers. You can use it for conforming 97 loans that allow a gift. I've also used Ameridream.

Jeff thanks for sharing,

I have used other company such as Housing Action Resource Trust (HART) http://www.hartprogram.com/ and the Gift program works lovely. I've found that most people don't believe until you make a believer out of them. I'm currently closing a conventional loan where the lender is allowing the seller to pay 6% toward closing cost for recurring and non-recurring cost. The best part is that they are also allowing the hazard insurance premium to be paid at closing and come out of the 6%.

Do you know if FHA will allow that or does the buyer have to come out of pocket for it?

Jeff...I am going to be the lone dissenter here. I have written posts about this subject and am passionate about it. A great part of the reason foreclosures are at the highest level ever is because buyers didn't have any of thier own money invested. I have seen buyers buy a home with no money down and then go out and buy a lot of toys because mom and dad have them and they want them too. The moment they cannot make the payments they walk away from the home but keep the toys. Why? because they had no investment of thier own in the home and no pride! I'm sure you and I were raised the same. I was not allowed to buy anthing unless I had cash to pay for it or a strong downpayment and proof I could handle the payment. You and I were responsible because of this. Where is the pride of a homeowner that can walk into a home with no blood sweat and tears of thier own? Have a great day.

I am not a fan of 100% financing for the reasons George mentions. However look how long VA has been around and it's comparatively successful track record.

I do believe FHA will become more and more relevant in the current market. So if you are not well acquainted it is a good time to do your homework. It provides an outlet for those with higher debt levels but that have demonstrated an ability to manage their payments.

Greg..... I had to check and read your profile, because I wasn't sure what you meant by reports. You meant as in appraisal reports. Again, what's sad is that they have been doing FHA all along. As I mentioned, so many lenders got very complacent in the sub prime market, because it was more lenient in several areas that FHA isn't. And what's sad about this, is that they weren't looking out for their client, because the rates were higher. Thanks for stopping by.

Brian.... yes, you can use this on certain conventional programs also. And I know of Ameridream, but just stuck with the company that I have used before. Just as a realtor or consumer shouldn't be jumping ship with a loan officer, if they are already comfortable with them. anyhoo...

Jeff H. ..... I am not familiar with Hart. But thanks for mentioning this. And I need to brush up on the 6% seller help on the conventional side. Is that my community home loan that allows 6%? Most conventional loans are 3% until the buyer puts 10% down. But I would then need to know what they can be gifted, just like FHA allows for 100% gift. Could you clarify this for me? thanks

In regards to your question. Since this would be considered a gift from a non-profit organization, those funds could be used for anything. The seller 6% can only be used for certain items and not for non-reoccurring costs and prepaid interest. Good point....

George T. ..... I don't mind if you differ in opinion. And after reading your comment, you make a very valid point. And yes, we were raised the same way, hence why my credit card bills are low. I use my debit card often.My dad is the same way. But I guess it's easier when you have the money to do that, hence your point.

But read Perrin's comment. He did mention VA and they do have a much better track record. Part of this reason is because you have to be a stronger borrower in regards to credit and your max DTI, which is just one ratio. And you are slightly getting ahead of me here. ;o) In part 2, I am going to talk about FHA in depth in regards to Nehemiah and that FHA is a little stricter when it comes to this type of financing, because of what you mentioned. A higher default rate and foreclosures. So, I am glad that you brought this up, it's like a preview to my Part 2. thanks for your input and feedback.

Perrin...... Again, good comment and I addressed this in my previous comment to George. But this is a question for both you and George though. Would it stop you from helping a client out, if this was the only route that they could take? If they still met all of the qualifications and that you weren't pushing the envelope? Just curious. Thanks for your input.

jeff belonger

George brings up a good point; borrowers with skin in the game are less apt to walk away from a property. I seem to remember that the Nehemiah program borrowers had a LOWER foreclosure rate than the universe of FHA loans. That may be fact, it may be conjecture.

That seems to be a paradox worth exploring. Jeff, do you have any data on that?

Brian.... as I mentioned, George and Perrin bring up a good point and that this will be in my Part 2 series when I write it later today. thanks...

Hi Jeff -- is the gift from the seller included in the overall 6% contribution or in addition to it? This sounds great --

Joan.... it's actually 2 parts. 6% from the seller as a seller contribution and another 6% from the seller, but it goes through Nehemiah and back to the buyer as a gift. Yes, that is a lot of money, but depending on the rate and such, you might only need about 6% to 8% to close the whole deal. But what's great about this is that the Nehemiah money is used for their down payment, which you can't use from the seller concession's side.

Call me if you ever have any questions about this. Part 2 will be up sometime tomorrow.

Hmmm...I've never heard of that. See, I learned something again. I love this place.

APR

2007

Christy...... thanks for stopping by and I hope it helped some.

I hate to be a dessenter but the Neamiah program is responsible for a great deal of our foreclosures here in Charlotte and if I am not mistaken was under investigation as being a type of Ponzi Scheme. Most privater sellers are not going to funnel actual cash to a buyer thru Neamiah, which then leads it to be a tool for many a builder to use it.

To sell over priced homes to people that cannot afford them, Please look at the Charlotte Observer and the Beazer sub division. I am sure at one time the program was a good idea but now it is usually used by developers looking to take advantage of low income buyers.We now have an entire subdivion that has no value due to over 125 foreclosures out of 400 homes. Neamiah makes a lot of money at 499.00 a clip to funnel money into transactions.

JMHO

Sandra... I appreciate your feedback. And I would partially agree. As I stated above, this will be part of my Part 2 that I will have out late Monday. I am just gathering a little information.

But.... here is something to ponder about. Why destroy a program that has worked for others. I agree, I can see builders exploiting this and I actually know what development that you are talking about. But what about those not buying in a development by a builder, new construction.

Again, just as so many do on AR when writing about posts that are one side, blaming this person or that person.... we need to look at the overall picture and dissect the whole issue at hand. Asnd not just pass alkong information to the public that might give them a one-sided opinion. Just like the media, they give you one side. Not saying that you are, but again, we need to mention the good and the bad. And as I stated, this will be part of my Part 2 series. Just my .02.

Thanks for your honest opinion and feedback. I do want the public, the media, and the real estate sector to see and hear about it all.

Unfortuantely Nemiah usually , especially in Charlotte, is a tool that only builders are using. Private sellers are usually not in a financial position to front money to Neimiah. Most private sellers can only give concessions by jacking up the sale price of a house and then in turn giving it back at closing.Perhaps it is different in NJ , but here in Charlotte Neamiah is a low income/starter home builders dream. Not just the beazer developement, it happens in most of these communities.

I work with the housing oppotunity foundation in Charlotte so I have done a lot of research and attended many rpograms on these "charitable" organizations and I use that term lightly. If these programs are different now hopefully they will actually help home buyers and not just builders.

Looking forward to the next part.

APR

2007

Yes FHA is the way to go. Now since non-conforming is gone

Sandra.... Well, I will state that FHA needs to clamp down on builders and how they use it then. Blame HUD for allowing the builders to get away with this after a long period of time. As I stated, I will be doing a Part 2 on this, but I want to gather all of my facts first. I am not sure if there are new guidelines for either consumer and or builder... if they might be different if buying a new construction home, etc etc.

The only thing about some of these programs being different now would be FHA's stance on the non-profit companies and how much tougher is it to get a FHA loan, if they use Nehemiah or another non-profit company.

You mentioned briefly about the seller paying for Nehemiah and such... and at a clip of $499 per deal. As I stated, the buyer and lender can pay for this also. Maybe forcing the buyer to at least pay for the fee. Gee, the lender makes some money, myself, and could pay for this or put it into the rate.

Again, I truly understand what you are saying. But let's make the blame on everyone and not just the builders. Even if the client put 3% out of their own pocket, all they would be risking is $3,000 on a 100k house. The buyer's are the ones that know they can make the payment or not. My whole point, just as I made in this post yesterday... Subprime Bailout Rant by Amy Bergquist, is that we need to hold many of the borrowers accountable. Just as most of the other comments said the same thing. We need to watch how we educate the consumer on this subject. It's important.....

But I do really appreciate your input, because we need to hear all stories when it comes to this and regular financing...and the foreclosures and first payment defaults.

Benjamin.... well, did you read George Souto's blog? News Media At It Again With More Scare Tactics!!!!!
This is a great example of not always looking towards FHA as your sub prime filling. Take a look at it.

Good day all - I do a ton of Nehemiah deals and am always amused by the real estate brokers and mortgage loan officers who say this is a bad program. In Maine at least you can also tie this into the bond program which also gives the borrower $4000 towards closing costs. This usually ends up with the seller paying about 6.3% of the asking price. Since the national average (according to NAR) the settlement price is 95% of the asking price, what really is the difference? I tell my pre approvals to offer the asking price if the seller tries to inflate the price we just move on to the next house. There sure are enough of them out there.

So I disagree with the blog that states it results in over priced houses and the rates are much better than the dying subprime. I even closed one client with a 575 credit score, for the last two years every payment has been paid early - Like Martha said it is a wonderful thing

Bob

APR

2007

We just sold a listing to a buyer using this organization. It looks like a good thing for the buyer who needs it. The offer was a little complicated to navigate and counter, but we made it work to everyone's satisfaction. It would be nice to see other organizations go this route.

I think the real key is using real estate brokers, a lender and a title company who has done this before. Anyone who has not done them has a learning curve. It is tough to navigate but I am doing two more tomorrow :)

Bob..... thanks for sharing this, that you do many of these. But you lost me in your 2nd paragraph, in regards to the blog that states over priced houses and the rates are much better than the dying sub prime.

At least with respect to the rates, the rates are much lower than the sub prime rates. What rates do you have for this? Unless I misunderstood what you were trying to say. thanks for your input and feedback.

Charles.... this is great news and to see that others have experienced this. thanks for sharing.

Robert..... yes, this is true and helpful. But you also have to do one of them to get to the next level. .. right? Especially if you are good at what you do and understand the mortgage process and FHA to begin with, you could handle the challenges of the Nehemiah program. I did when I did my first one. thanks for stopping by.

APR

2007

I've used Nehemiah and it is a good program for firsttime homebuyers..

MAY

2007

Has anyone heard if one of the big Down Payment Assistance Providers Buyers Fund aka Neighborhood Gold is out of business already? Heard they are exiting and only Nehemiah, Ameridream, Perfered Gold (I think their called) are left out of the "big guys"

JUN

2007

I never post to these things, but I wanted to publicly say thanks! This artical got me into my home and out of the renting cycle. After reading this I found a site called www.StuntLoan.com that did the down payment assistance. It is like a dream! I never would have thought I could buy a house with NO money in my savings. Thanks for this information, you really changed my life.

Rickey.... it can be a good program. I still think if you have at least 3% of your own money, FHA is the best way to go. Why? There is no penalty and the rates are as low as a 5% conventional. Just the bare facts. Thanks for the comment.

R.B. ....... I never even heard of Neighborhood Gold until a few months ago. The reason being is because I have been using Nehemiah since 1998. Why venture out if I am use to their program and that there is hardly any difference. In any case, thanks for the feedback.

Eddy..... so, do you visit Active Rain often though? And when you said "This artical got me into my home and out of the renting cycle.", are you talking about this particular one that I wrote? I am just curious, because I like to get an idea of who is reading this and how many people are actually being help by what I write about.

Overall.... I am glad that this was able to help you, at least this program. I wish we could have talked. But I thank you very much for reply to this and maybe you could come back to answer some of these questions. One last one, what state did you buy in? Again, thanks for your feedback and input.

FEB

2008

I often hear people say that down payment assistance programs push property prices higher. I am amazed at the comment because it presupposes that the appraiser is going to be influenced because down payment assistance is involved in the deal versus a deal without DPA.

How, I always ask..... The most common reply is that the appraiser will somehow be verbally influenced by the DPA people, realtors or Loan Officers and he will knowingly inflate the price because of something they say or do.

To that I can only reply that if the appraisal system is in such a state of lawlessness that an appraiser is going to falsify a report because a realtor pressures them then the whole system needs to be torn apart. What on earth would make a professional person who has taken the time and paid the expense of getting his license, "What exactly would make him risk his livelihood over a deal just because it involves down payment assistance?"

In addition, the likelihood of a review appraisal cutting the price to the Fair Market Value is almost guaranteed and everyone knows it, so once again. What exactly would entice an appraiser to risk his livelihood just because a deal involves down payment assistance?

DPA has no impact on appraisal values and in fact we are strong proponents of the "Fair Market Value" Real Estate Transaction Model as defined in the latest whitepapers. DPA employees and contractors never even get involved with the appraiser so influence is impossible. The possibility of realtors or LO's influencing appraisals is an issue that is addressed with current regulations.

Why would adding DPA to a deal artificially inflate property prices?

It won't.

I agree whole heartedly that DPA should not affect the appraisal of a particular deal. However, DPA programs do cause inflation in the market through increased demand and the recording of inaccurate sale data in MLS and public records.

DPA increases demand by making more people eligible to by a house; not a bad thing, but higher demand causes prices to rise. That is about as basic as it gets in economics.

Often a use of DPA is facilitated by a phony sale price. An example with numbers chosen for simplicity; a house is on the market for $100,000. The seller will take as little as $98,000 an be happy. Buyer doesn't have a down payment. To get the seller their $98,000, the sale price on the contract is listed as $122,500. The seller gets their $98,000; the buyer gets the house for a fully financed $98,000 and the lender has loaned $98,000 on a $98,000 house. The problems are, the lender set the rate based on a risk level commensurate with the buyer having a 20% equity stake in the house, their is a sale on the books at $122,500 which was really $98,000 and it could only happen with a faulty appraisal.

Most appraisers would stop such a deal dead in its tracks with a solid valuation. However, it only takes one moron with lousy ethics to make the deal go through. Their are those who will just keep calling appraisers until they find the moron. It only takes a few of these bogus deals to taint the sales data in a neighborhood to where an honest appraiser could be duped into think the houses are actually selling for $122,500 rather than $98,000. If the DPA scam is hidden well, how would anyone know?

How does DPA push prices higher? Through shopping for dumb/crooked appraisers whose only goal is to make the deal work and the client happy, rather than choosing appraisers based on their ability to do a good job. DPA should not be a problem, but it is a favorite tool in some circles of mortgage fraud. Its misuse has the potential to devastate a local market.

Greg,

You are throwing out the baby with the bath water. The problems you list with appraisers exist today in every deal without DPA. To try to blame DPA's for them is ungrounded and there are proper regulations in place to enforce fair commerce among appraisers. In real estate we all operation from the position that everyone around us is following the rules as we are. There are always rogues but they are the exceptions and not the rule.

In your example the sales price is $122,500 which must imply that you have a valid appraisal (and probably a review appraisal) for that much meaning that property is really worth $122,500 and not the $98,000 your seller is willing to accept to let it go. If it sells for $98,000 when it appraises for $122,500 haven't you artificially lowered the value of the home and the values of the other homes around it because it really is worth $122,500 even though it sold for $98,000.

DPA's don't artificially drive up prices..... Sales volume, buyer and seller sentiment, general economic conditions drive the prices up not because you have a seller willing to loose some profit to move his property.

Why do you have a problem with a program that allows the home owner to give up some of his unrealized profit in his house to get it sold?

This program leaves the equity in the home for the new owner and charges the appropriate taxes on the transaction.

Show me who gets hurt in this transaction.

David,

My problem is rarely is a seller truly willing to give up part of that unrealized profit. Bogus appraisals and reviews are not that hard to obtain, especially in this environment. Federal regulation exempts a loan under $250,000 from needing an appraisal. People making mortgages don't make money off of loans, they make money off of making loans. The general attitude is do what ever it takes to get the deal done.

DPA programs are a way to get the deal to work, rather than sound financial programs. If sellers are truly giving up profit, they are hurt by not getting a true price for their property. The reality is they are giving up nothing. If the house was worth that much, a buyer would pay it. The holder of the mortgage note is hurt when the homeowner walks away from the house in which he has no real equity do to a financial crisis in his life. The neighbors are hurt when their taxes go up do to artificial, temporary rises in prices.

You overlooked the fundamental way DPA programs raise prices, even if everything is above board (which it rarely is.) DPA make more buyers eligible to buy, which increases demand. That alone would cause prices to rise. The simple fact is there is no reasonable rationale for DPA except to create the illusion of equity in an effort to gain a lower interest rate. IMHO, DPA is nothing more than a scam. It persists only because there are sufficient numbers of appraisers that are dumber than dirt, lax enforcement of appraisal regulations and a disconnect between the payment received by those selling loans and the quality of the loans they make.

Greg,

Our program starts with a valid appraisal.... That's it. I'm sure you can find one.

If the house appraises for $122,500 but your seller will let it go for $98,000 then your seller is giving up $24,500 in unrealized profit. That is a simple fact you can transfer across any type of business transaction. The profit exist because the value of the house says so. Your sellers current situation drives her to sell it for less than it is worth in order to sell it quickly. Happens everyday in every industry.

You say that DPA's are not sound financial programs and to that sir I can only say you need to educate yourself on the business models of DPA's because once again you are throwing out the baby with the bathwater. Sure there have been some bad programs but hey there have been bad priests....

The different types of DPA's are very well developed after over 10 years of service and over a million homes served. Most of those homes, are still filled with the people who bought them and I would bet a lot of money that overwhelmingly those people will speak highly of the benefits their DPA's have provided.

To your comments of "Illusion of equity" and "effort to gain a lower interest rate" I ask how can there be an illusion of equity when a 3rd party has valuated the property? And, doesn't every single person getting a loan and every loan officer Always look for a lower interest rate.

These programs do that without creating equity or stealing it away. I hope you will take some time to really understand the programs because they have helped so many people it would be a shame to loose them but I fear your opinions of appraisers and DPA's are set into what can never be opened.

Thanks

FEB

2008

Giving up $24,500 is never a sound financial move.

But in markets like today that is a common occurance and with our program it can benefit everyone.

The distressed seller sell's his house instead of going into foreclosure.

The buyers get a home at a reduced LTV and fair market value.

The neighborhood values remain at the Fair Market Value instead of being artificially lowered because the seller is in a jam.

Can you find a problem in the deal?

I understand gift funds and have used them many times, but my gut feeling has always been that paying a non-profit company $500 to receive a contribution from a seller and then make a slightly lower donation to a needy buyer stunk.

It is what it is and if FHA wants this to happen, they should do 100% financing and allow 3-6% seller contribution - out in the open.

I understand it's a deal breaker in some cases, but I agree with my fellow posters with regard to "skin in the game." We have helped a lot of people get into houses they didn't deserve and were not financially ready for. I cannot count on my finger AND toes how many people that I have talked to that seemingly woke up a thought "I wanna buy a house." No reserves, no credit history, just 4 hours of unbridled desire.

We are doing our industry a dis-service to bend the system to include these people. Maybe I'm wrong.

I understand and if the government could assist its citizens it would. But we don't see that happening with FHA now do we?

Some people look at DPA's in a negative light and can't get over it. That is your choice and I respect that. I wouldn't expect you to use a DPA in the future and certainly wouldn't push it on you but can I ask that you consider a few items to balance against your negative feelings?

The money used in DPA transactions is valid profit that the seller willingly and knowingly gives up to help the buyer qualify for a house they can afford at an LTV they can manage.
The seller will only use our program when they are in a bad situation with their home and their only other option is often foreclosure. Are we the lesser of 2 evils or a positive solution?
The local neighbors home values are negatively effected when someone sells their home at below the fair market price, so by using our program we keep that negative affect from occurring.

Those are just 3 of the reasons why DPA's are beneficial and I have others like how beneficial it is to new home buyers to get a home with NO PMI because they had a large down payment provided by their DPA and still there are others.

Since you worry about the dis-service to the industry by including DPA's can I ask where you draw the line? Shouldn't people in a lower economic class have access to home ownership?

Would you say "NO" to a single mother of 3 just because she wanted to use a DPA to get a home for her family. I can't imagine you are that cold, so I hope to imagine you will reconsider your solidly negative stance towards DPA programs.

In our company we are proud of the job we do helping less fortunate people gain what will most likely be their largest life asset. We help people buy homes in a fair and open manner, and we are happy to do it.

David Hayes

Proud owner a DPA company serving customers across the nation!

These programs are great. We've used them several times.

FEB

2008

Again, I've used DPA and will consider these programs in the right circumstances. They have their place, to be sure. I think it was a bad idea for FHA to allow this in the first place and I think they should reconsider the way the DPA programs are used. I can't tell you how many meetings I've had with buyers and Realtors explaining how/why we need to structure a sale a certain way. It's hard to explain because it doesn't really make sense. It's not logical and should be what it is - a seller concession.

If gift funds allowed by the FHA are so sensible, why aren't they excepted anywhere else?

I'm all for helping renters becoming homeowners, homeowners are better citizens. I'm all for the FHA making more homeowners possible. I'm all for DPAs. I don't like the idea of seller donates to the non-profit and then the non-profit sends a gift to the buyer. It doesn't make sense.

I think we have abused DPA programs in many circumstances and helped a great number of deserving people in others. If the FHA wants to allow the seller to assist the buyer, put it in the contract and avoid the non-profit. The seller would then have an extra $499 to assist the single mother of three further.

It's the only thing that makes sense and it is inevitable, regardless of my thoughts or the number of DPA companies that vote for the status quo.

Rebecca,

So you don't like DPA's and want them cancelled but you also want to use them when the situation suits you..... That seems a bit disconnected and you can't make fair standards for all when people expect to use them for themselves but don't want to allow others to use them.

When Nehemiah and Ameriadream started over 10 years ago people said the same thing, now they have been accepted by all lenders and it was only when the IRS complained about the issue of taxes did anyone find fault with the gifting programs.

We don't use gifting and actually use the new Earned Income programs which fix the issue the IRS had with the gifting programs and now that taxes are being levied correctly we truly expect these programs to take the place of the gifting programs and be much more widely accepted.

Why again should you get to use DPA's when you don't want others to have the same ability?

Too many Realtors and mortgage people believe they somehow operate in the world of moral righteousness while everyone else is somehow trying to "Bend" the system. Sure would be nice if we all had your soap box to preach from.

DPA's help people with their largest asset purchase and by people we mean everyone. Not just particular clients of Realtors who believe they are more deserving, and that is the only way assistance programs can be implemented fairly.

Greg,

Do you remember the movie My Cousin Vinnie?

In it Marisa Tomei is on the stand and is asked a question about a car to which she responds that's a bullshit question. The prosecuting attorney and the judge ask if it's bullshit because she can't answer it to which she replies no one can answer it.

My point is this... the comment that DPA's are some outside magical mystery force that artificially inflate property values is dead wrong because they are part of the market.

There is nothing artificial about them maintaining property values; it's as actual as it gets! Frankly it's a good thing and if you own a property your welcome. They have every legal right to exist in the marketplace and therefore have every right to be able to influence the market. It's as simple as that.

Your issue on appraisals being influenced seems to be getting handled with the new fannie guidelines. Loan originators or Realtors will no longer be able to select you as their appraiser.

Sorry about all those relationships you built over the years it looks like a computer will be putting you in the queue. Now the real question is who will protect consumers from lousy service?
Will you even know if a DPA is going to be used? Does it effect the way you appraise a property?

I can tell you that I do believe in innovation and there are other solutions entering the marketplace that enable buyers to receive the down payment funds they need that have additional benefits to sellers. I feel confident that these solutions will probably overtake the DPA's market share in the coming months.

Simply put if DPA's irk you these solutions are going to drive you nuts, but it all comes down to the same thing.

1. They are legal
2. They have a right to exist
3. They are compliant with all guidelines
4. The do not violate the federal home mortgage disclosure act
5. They do not violate RESPA
6. The Equal Credit Opportunity act does not allow banks to discriminate against them
7. They will help to sustain property values
8. They will attract new buyers to the marketplace
9. They will help Realtors sell more houses
10. They will help loan originators originate more loans

11. oops they will get appraisers more work
12. They help the housing industry and therfore our economy.

It amazes me that anyone in our industry other than a regulator (thank goodness these decisions are made at higher pay grades) or a risk manager for a bank (that should just buy extra insurance, or raise the rate to cover the risk) or someone not shorting all the banking and real estate stocks would want to hinder home ownership at any level.

It's the best economic stimulus package we have.

But don't worry one day I really let you know what I think :)

Marlo

wow.. this thing just blew wide open. My honest opinion.... the blind leading the blind. David and the other ghost, unless it's you. Of course you back the DPA's, because you are an owner of one. From an owner's perspective, it's very easy to cloud your own judgment. You state that people can inflate appraisals anytime... yes, this is true. But you know what, appraisals have been inflated more when you need a seller to give back $10,000 to $15,000, as opposed to $3,000 to $8,000.

On another note, a statement is made..

Giving up $24,500 is never a sound financial move.

02/28/2008 03:38 AM

by Greg Myers

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But in markets like today that is a common occurance and with our program it can benefit everyone.

The distressed seller sell's his house instead of going into foreclosure.

The buyers get a home at a reduced LTV and fair market value.

The neighborhood values remain at the Fair Market Value instead of being artificially lowered because the seller is in a jam.

Can you find a problem in the deal?

02/28/2008 07:27 AM

by David Hayes

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David.... sure... but it's rare for a seller to give up this much in equity.

Overall.... you all can say what you want. Don't get me wrong.... I think the DPA programs have been good, but only from those that have not abused the system. And I won't turn anyone away if they fit the lending guidelines and can do a DPA. BUT.. in all honesty, as Rebecca briefly mention.... and I stick by this statement. Those that don't have any sweat equity and money left over after a purchase, becomes a big risk. It costs money to own a house.... repairs.... appliances and such breaking down... cars breaking down... so much can happen. And then you need something fixed.... turn around and you don't have your mortgage payment. Many people live check by check. And if you don't believe in this or agree, then you are just leading people blindly into the dark. This is just my opinion, but it's been documented. Things need to be slightly tighter. People just don't save, knowing that they can get these types of loans then. And yes, in several cases, it can drive values up. It does take place and has hurt the market in many areas.

And as it stands today... the last day for DPA's is March 28th.... unless they change that from now until then.

Nehemiah - Ameridream - FHA financing....what does it all mean?

MAR

2008

Jeff, congratulations on the best comment on the night:

"It costs money to own a house.... repairs.... appliances and such breaking down... cars breaking down... so much can happen. And then you need something fixed.... turn around and you don't have your mortgage payment."

What would you think and would your attitude change if not only in assisting folks to find a down payment solution, a professional certified loan officer (with a code of ethics and integrity, helping them select the best available home loan for their unique situation) a professional certified Realtor helped them to not only select the right property for their unique situation but also protected them by providing professional services regarding contracts, negotiations, inspections etc. And then a professional settlement agent made sure that title was correct and insured. But best of all these folks had the opportunity to be enrolled and educated about programs that on those days (when "so much can happen, and something needs to be fixed and appliances are breaking, and the car crapes out) they received discounts, warranties and 100's of other services that save them lots of money.

Is that not what we as industry professionals do?

Everything can be approved upon in our industry and we are all adjusting to changing guidelines daily. I wonder have some of us lost sight that it is our chosen profession to promote home ownership.

My goal is to help my clients get off the never ending spiral of debt and on to the path of wealth. Owning a home is one of the smartest financial decisions they will ever make,

Down payment solutions are part of that solution.

Whether the DPA's should bear the brunt of the responsibility of informing every home buyer that "It costs money to own a house.... repairs.... appliances and such breaking down... cars breaking down... so much can happen. And then you need something fixed.... turn around and you don't have your mortgage payment." (almost likes it's a warning on the bottom of a Cigarette pack) or the responsibility rests with their mom and dad, their loan officer, their realtor, their cpa, their lawyer, their priest and other trusted advisors or innovative companies should be started that can provide these vital educational services we as an industry of professionals should be able to decide and not some regulators.

What can I say other than I believe in a free economy, one that allows for innovative and in some cases inspiring solutions.

On a more emotional level, there is nothing like attending a closing and helping someone own their first home (what can I say I'm a sucker for joyful tears). I do understand that neither the buck nor the responsibility stops there and hopefully that's why I surround myself with other professionals who take pride promoting home ownership and responsible financial planning and management.

Marlo

Marlo, you take the best post award.

Jeff, you keep saying that DPA's cause values to increase but I don't believe that to be true and I again say that if the appraisers in your area are so easily swayed that they will falsify appraisals based on the Realtor or LO's influence then you are in a troubled market.

We all know about appraisals that used to be pushed up when no one checked appraisals but do you really think a home worth $200,000 is going to get appraised at more than that? In today's world where every deal goes through at least a desk top review those don't work anymore. The advent of the Internet and open appraisal systems ensures that.

Marlo's characterization of his duties as an industry professional are right on target. As real estate professionals we should try every avenue available when working for our clients. DPA's are a part of the solution and a very integral part, in my opinion.

David Hayes

DAVID..... your statement makes it sound like I say ALL DPA's cause value increases.... read what I have written and commented... I say that they can lead for this to happen. Besides, unless you have been a loan officer and on the lending side for 5 + years, you won't understand then. Yes, lenders and loan officers can and have gotten appraisers to push value. Yes, this is true. I have actually seen it happen. And not just in my market, but 5 to 6 different markets across the US.

You then make this statement.... "We all know about appraisals that used to be pushed up when no one checked appraisals but do you really think a home worth $200,000 is going to get appraised at more than that?"

My answer to this..... Use to? It still happens. Not sure what world you live in. Nobody is perfect and not everyone is ethical. Just a fact.

Then you went on to say... " In today's world where every deal goes through at least a desk top review those don't work anymore. "

My answer.... you know what makes me mad? People as yourself that make blanket statements without real knowledge or facts. And I have seen many loan officers do the same, which is even worse,,... misleading the consumer. But NOT every deal goes through a desk top review. And FHA loans? It depends on the company. As a banker, they might just leave it up to the underwriter in many cases, to just manually underwrite the appraisal. Not all reviews are done on FHA appraisals.

Overall......I agree, as real estate professionals we should try every avenue that is available to us. Which makes me even more upset because you are just promoting ONE thing, DPA's. You own a DPA comapny. You apparently didn't read my whole post and my comments. I do DPA's and I love them... but we have an issue when people are put into one with no sweat equity and no savings when they get into a house. This is the point that you fail to read or even talk about. Just like other so-called individuals in this industry, when they try and debate something. It always seem one-side. Myself, not to pat myself on the back, but I always look at both sides, giving positives and negatives on both sides. All I see you talk about is one side and even give semi misleading info about the other side. That is my opinion, but your comments are staring me in the face, so it's not like I am making this stuff either. Did you read Marlo's comment? The first part of it? 03/01/2008 02:31 AM

Jeff,

I choose to address the points that "I choose" to address in these posts. If I haven't addressed a particular post for you I can only say that it is probably because the points I ignore are points I feel are best to ignore in order to allow the conversation to progress. I've made a number of points you don't touch but that is the reality of this type of communication.

You criticize me for expounding the attributes of our programs but what would you expect? I and a few other people are building a niche market that will soon serve tens and hundreds of thousands of people. We must be the banner wavers for the industry, if not us, who?

We have more than a few nay-sayers who take a cursory view of our programs and decide they don't like it and won't have an open mind.

There are down sides to DPA's and I'm sure people will continue to outline them. I hope to have the freedom to try to balance their input out.

How about I tell you about the newest versions of Social Networking Sites?

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www.MovieRush.Com serves the needs of the independent film makers.

www.EarthRush.Com is the top level site of their family of websites and I invite everyone to visit those sites and take part in the new virtual environments that are interest specific social networking sites.

There's something different for ya! :-)

MAR

2008

Jeff,

I hope I broke the direction of our conversation with those sites, because I'm not here to argue with you or make critical examinations of your every word and sentence. The "Desktop Appraisal" comment was a general comment on the current state of scrutiny that loans endure in today's market and I don't mean to imply that you think all DPA's increase value, I think we both understand that in theory they never do but in real life they do because of unscrupulous participants. That only takes me back to my prior comment about the baby and the bathwater.

I'm here on these boards because I have a program that is helping people get houses sold and purchased in a way that helps all parties, fully discloses all information, is totally transparent, gives all parties what they expect to end up with and in the end follows the letter of the law.

In getting the word out I don't mean to sound to "market-y" but I've got to be able to tell how our program can help people and this is a thread about DPA. I have a large number of pundits that make statements about other DPA's without understanding our program and I must respond to try to correct those statements of opinion with statements of fact.

How about we hit 1 point at a time.

1. Giving up $24K in the deal.

You say that "Giving up $24,500 is never a sound financial move." and I agree but you have to remember that we only work with 1 type of seller. A seller in a position to be lowering their price below the appraised value in order to sell quickly. People are lowering prices all over the country right now but with our Earned Income programs (not just mine there are other companies) those price reductions can become a valuable enhancement for the home in the form of the membership to the Owners Alliance and that "unrealized profit/equity" that the seller freely gives up stays with the house instead of disappearing in the form of a price reduction that ultimately hurts the neighborhood values.

I look forward to your comments.

David

MAR

2008

This is a very hot topic... I'm in favor of down payment assistance programs, personally. My .02 are in comments about the appraisals. I may have missed the response to the potential for inflated appraisals, however my thoughts on this subject are: Appraisers can place any value on a property that they choose. It doesn't mean that the value will be of ANY USE! If the appraised value cannot be justified with the comps., the underwriter will question and deny the appraisal. If this happens often enough, the appraiser will be black listed by the lenders, and nobody will be able to use the appraiser. This is best case...Worst case, should too many bogus appraisals be turned in, everybody involved can be sited for fraud. I don't feel that would be too bad, considering how dishonest many in our market have been. I just had an appraisal turned down by a lender this past month on a 5 acre property in a rural area because there "weren't sufficient comps to support the value". The comps that could be found were 2-3 miles out, with the sales dates being between 4 and 7 months old. Anyone who doesn't believe the appraisers are being scrutinized are either living under a rock, or spouting information that they've heard and haven't verified for themselves.

MAR

2008

Jeff, great blog and great information. I too am a fan of the DPA programs. I recently came across a new one that is very similar to Nehemiah. www.preferredprogram.org ahs a program called partner plus. It enables the processing fee to be paid by either the seller or the buyer. The great thing is if you continue to use the product, they (The charitable orginazation) will set aside money for you to market their product and help more of the public become home owners. Great blog and keep up the good work.

JUN

2008

Good post Jeff, I would like to add the Hart program it works similar to Nehemiah were seller gifts the 3% down. There is also another program that Wells now has were they are able to give buyers up to 35k in future value to be used for house repairs or upgrades.

Pedro Gonzalez

www.VipTopTeam.com

JUL

2008

If you haven't done so, go to this website, http://www.rallyforhomeownership.org/

It only takes 30 seconds. This form will go to your local Congressmen and Senators.
CONGRESS MEETS ABOUT THIS TODAY!

HUD should modify to lessen the risk BUT don't get rid of it. This is one of the last programs out there right now that can get buyers into a home with no money. (They still have to credit and income qualify)

http://activerain.com/blogsview/605114/Down-Payment-Assistance-Congress

It sounds to me like this is all but over with at this point. As a tool, I'd like to have it, but it never made sense to me.

Say bye-bye. They should have repaired the DPA program about 5 years ago. Now it's beyond repair and soon to be history.

Sorry everyone that I have been away from this topic... some people with just argue the fact, based on misleading or political figures/numbers. It's funny, in the last 12 years that I have been doing these, the foreclosures were not mentioned..... that it wasn't an issue. Now, they are saying that 1/3 of all DPA loans are going into foreclosure. Can we take into account 2 things.... more and more people are commiting fraud on the real estate side of things... the loan officer and the appraiser. Also... can we say that the economy is very bad...that this is happening to everyone. Can we actually look at those foreclosures and see if it was due to loss of income.job.... or death in the family,... or divorce?

Overall... I think it's a bunch of idiots on capital hill, screaming, just to make a change, THAT WILL HURT, because they won't take the time to understand all of this.

ERA REGENCY.... again, misleading information from WELLS.... that is a 203-k loan. it has 3 parts to it now... under 15k, under 35k, or over 35 k.... it's not Wells... that is a FHA program and you just don't give it. The borrower pays for it in their mortgage.

SCHRADER.... now, I am semi confused.... as a tool, you would like to have it, but it never made sense to you? How can you sell something or want something, if you don't believe in something or if it doesn't make sense to you??? And even though it sounds over, someone in my opinion, will step in. This will hurt our industry a lot more without it, than with it. The numbers are misleading and not explored.

VERTICAL.... not really.... they should have no approved every lender and their mother to seel FHA loans... there were some companies that were wholesaling FHA loans, that were taking very dirty FHA loans. These companies are not around now... but, they add these numbers that are being mentioned. It shouldn't matter as much if I approve a client under FHA guidelines, if it was their own money or DPA. If they fit the ratios and income, an qualified client is a qualified client. Things happen in life...

In any case, I am not really here to change peoples minds, but to make them think outside the box... and not to listen to those that don't even deal with mortgages... that just look at the total numbers, without breaking them down... bothering to understand them. Yes, it's easy to critisize when someone says, 1/3 of all DPA loans foreclose. But there is more to it.... and this is what is not talked about.

It is easiest to criticize when something is irrational.

Buyer offers $95,000 for a house listed at $100,000 but has not down payment, so the deal can't close.
Same buyer offers $100,000 with the seller giving a $5,000 credit for a house listed at $100,000 the artificial equity is not counted as a down payment and the deal still can't close.
Same buyer now offers $100,000 with the seller of the house listed at $100,000 routing the $5,000 credit through a third party nonprofit company, suddenly its a down payment and the deal can close.

Yes, it is legal to use a non-profit front-man to convert a price concession into a down payment, but it should not be.

JUL

2008

They helped people that lacked ALL financial responsibility, therefore they had NO money at all saved, then our new borrowers started missing payments - go figure!

Not all deals were bad risks, but it looks like MANY were bad.

GREG,.... damn, so true and you are 110% on..... but only on the first sentence. But not in your last sentence. If the house legally appraises for the purchase price, this should not be a problem. If people qualify without pushing the envelope, then it should not matter.... read my comment to

REBECCA.... the sky is not falling, but it will be bad for a while. Those are the facts. I said 1 1/2 years ago that it wasn't going to get better until mid to late 2009. Yes, business has been better for me this year than in recent years. But the overall aspect of things, more people are doing worse.

I will be writing about this over the weekend or on Monday..... it's will be titled, "Buckle Up"..... I am getting sick of the politicians, the realtors, and some loan officers that have no idea. The figures they keep touting are misleading in regards to the DPA's.... and people don't think common sense. The bottom line, the average person just can't save, period. But if their rent is on time, what makes them a bad risk when buying with no money. We will see that the housing market will slow down even more once this is pulled.... mark my words... in markets that have homes priced from $80,000 to $300,000... depdning on the market.

Overall, the misleading facts that DPA's were bad recently, they aren't dissecting these figures... there is more behind the numbers. Gee, I have been doing DPA's since 1996.... all of a sudeen, these are bad? Did anyone look at all loans and how they are performing?? Coupled by the enconomy? It's just sad... the gov't needs to let the market correct itself.... period....

Jeff, I respectfully disagree with your point of view. Simply because the amount of money involved in the scheme keeps it within the range of reasonable values for the property does not make it okay. The range from the highest to lowest reasonable value for an apraiser to give can often be as high as 10%. An appraisal is nothing more than a guess supported by the available data. When a piece of that data (the contract) is distorted by phony down payments, the appraisal will be distorted.

Furthermore, the value on the appraisal does not alter the fact the buyer has not actually made a down payment, and the seller actually sold the property for less money than is claimed. I think such programs should be illegal. Having said that, they are legal. A mortgage broker would be remiss if they failed to use such programs where they would enable someone to make a purchase that would otherwise not be possible.

I have no problem with the loans being made on such deals. I just don't like the convoluted method of making the deal suitable. If a buyer who is otherwise qualified finds a good deal where they can purchase a house below its market value due to special circumstances, but they don't have a downpayment; the lender just ought to make the loan rather than going through some phony DPA garbage. I know it does not work that way, and I think you are right to use, and recommend DPAs in such situations Jeff. At the same time I wish you didn't need to use such distortions of reality to make a viable loan package.

Yawn...wait till October ;)

Yes, the discussion will be moot once October 1st rolls around and DPA is no longer allowed on FHA loans.

AUG

2008

a new bill, The FHA Seller-Financed Downpayment Reform and Risk-Based Pricing Authorization Act of 2008 was introduced by several members of Congress on Thursday, July 31, 2008. Representatives Maxine Waters, Gary Miller, Al Green and Christopher Shays sponsored this bill that if passed and signed into law will allow downpayment assistance to continue indefinitely.

Scott Syphax, President and CEO of Nehemiah Corporation of America praised this group earlier today.

"Maxine Waters, Gary Miller, Al Green and Christopher Shays have demonstrated the willingness to understand all sides of this issue and the courage and leadership to follow their conscience. All those who understand the importance of working class American's having their shot at homeownership, need to work together to encourage our elected officials to pass this bill."

Click here to help and contact your local elected officials, http://capwiz.com/nehemia/issues/alert/?alertid=11598811

MAR

2009

hi............................article are so intresting and . Overall, the only thing that needs to happen is to be approved by your lender for the FHA mortgage and for the seller to contribute the funds.

hi.............article are so intreresting Overall, the only thing that needs to happen is to be approved by your lender for the FHA mortgage and for the seller to contribute the funds.

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

Cherry Hill, NJ

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