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

By Jeff Belonger

Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

April 12, 2007 12:19 PM

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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David Hayes

Buyers Account, LLC - Boynton Beach, FL

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 04, 2008 10:58 PM

Bo Hunt

First Choice Mortgage Group - Douglasville, GA

Metro-Atlanta Mortgage Professional

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 08, 2008 09:59 AM

Anonymous

Aaron D

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.

Mar 19, 2008 05:11 PM

#55

Pedro Gonzalez

ADT-Millennium Alarms Systems - Pico Rivera, CA

Home Security Systems- ADT authorized dealer.

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

Jun 17, 2008 02:40 AM

BJ Matson

The Choice Group - Olney, MD

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

Jul 22, 2008 06:13 PM

Rebecca Schrader

Competitive Insurance of Dundee - Dundee, FL

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.

Jul 23, 2008 02:33 AM

Randall Schrader

Competitive Insurance of Dundee - Dundee, FL

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

Jul 23, 2008 02:38 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

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

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.

Jul 23, 2008 03:30 AM

Greg Myers

G L Myers Real Estate Services - Chapel Hill, NC

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 23, 2008 06:14 AM

Rebecca Schrader

Competitive Insurance of Dundee - Dundee, FL

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.

Jul 26, 2008 01:09 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

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

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....

Jul 26, 2008 02:05 AM

Greg Myers

G L Myers Real Estate Services - Chapel Hill, NC

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.

Jul 26, 2008 02:45 AM

J Perrin Cornell

Coldwell Banker Cascade Real Estate - Wenatchee, WA

Broker, ABR, VAMRES

Yawn...wait till October ;)

Jul 26, 2008 02:58 AM

Greg Myers

G L Myers Real Estate Services - Chapel Hill, NC

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

Jul 26, 2008 04:08 AM

Anonymous

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

Aug 04, 2008 06:29 AM

#67

Anonymous

amol

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.

Mar 16, 2009 09:22 PM

#68

Anonymous

amol

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.

Mar 16, 2009 09:25 PM

#69

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