Nehemiah. These programs were a legal loop hole which allowed sellers, in a round about way, to fund the buyer’s down payment and allow them use an FHA loan to buy with no down payment from their own pockets. The DPAs have been a great deal for home buyers who didn’t have extra cash saved up for a down payment, and it’s been a great deal for home sellers because they brought in home buyers who otherwise wouldn’t have been able to buy a home. The down side has been that FHA has linked the DPAs to a higher default rate, and they’ve been trying to shut them down for years. Ameridream and Nehemiah contest the default figures, and claim that the defaults are more a function of fraudulent loans than problems with the down payment programs. Their claim is that administered properly, this is one of the best ways to bring low and moderate income buyers into homeownership and they have helped hundreds of thousands of families get their piece of the American dream. The DPAs have fought off court challenges and evaded death in the past, but it looks like this time it’s for real.
My experience lines up with the DPAs. The toughest part of qualifying for a mortgage has always been saving up the money for a down payment. I know that I’ve helped lots of otherwise well qualified buyers who without this program would have been out of the home market entirely. I also know that most of these buyers continue to pay their mortgages on time, and some of the buyer’s who started off with this program have gone on to use the equity they’ve built up to buy bigger homes – just like those homeowners who started out with large down payments. I’ve also known people who bought with larger down payments but ended up having financial problems down the road. I think most mortgage defaults are based on traumatic events like job loss, medical problems and divorce, than the size of their original down payment.
Another thing I’ve been seeing lately, now that FHA has increased their loan limits here in the Chicago area, is buyers using FHA and DPAs to buy up into a move up home. I have two clients I am working with now who are selling their homes, but because of the softness in the real estate market they need to bring money to closing in order to pay off their current mortgage and closing costs. With no money for a down payment they would be frozen out of buying. The DPAs allow them to start over again and not have to become renters again. Having a hefty down payment is always preferred, but this seems like a tough time to take otherwise good buyers out of the housing market.
So if you are looking to buy a home but you are short the down payment, this might be your last chance to buy. The new housing bill goes into effect on October 1st. . This means you need to buy a home and close on it by September 31st or you are out of luck. With 2 months this is plenty of time to find a home and to get a mortgage, but you need to act fast. If you are thinking of buying a new home here in the Chicago area or throughout Illinois, give me a call and we can go over your situation and get you pre-approved. You can still buy with no money down, but the train is pulling out of the station and you will have to act fast.
Click here if you would like to add your name to a petition to keep the DPAs in place. It may be too late, but it is worth a shot.