It is great in principle that President Bush has signed the most recent housing bill. It is also great that steps are being taken to improve the liquidity of the jumbo mortgage market through this bill as well. I also feel it is great that first time buyers will get a tax break by purchasing this year.
But there is one little rider that was included in the bill that may hurt the lower end housing market: the bill includes a provision removing all DPS's(Down Payment Assistance Programs) from FHA loans. Basically, a DPA is the seller providing the 3% down payment(as well as the closing costs most times) in the form of a contribution to a non-profit organization- which in turn is granted to the buyer(for a fee to the non-profit) as their down payment. The long and short is that a homebuyer could get an FHA loan with no money down when using a DPA program.
While I am not the biggest fan of DPA's- I feel an FHA buyer should have some "skin in the game" and financing a down payment AND closing costs inflates a sales price-it is a program that helps sell homes. The consequences of the DPA portion of the legislation may have a hurtful impact to the housing market.
Michael Byrne
Mortgage Specialist
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I have not seen any of them used in my business. We do have other first time buyer programs that I have one going through now. (MCC) A large percentage of my first time buyers are military that use VA allowing them to still do 100%.
I agree with Michael - This significantly reduces the ability of borrowers to purchase a home in today's market - DPA programs are the only way for today's mainstream homebuyer to purchase a home with no money out of their pocket.
DM
I think DPA's are used most often in the "non high cost" areas, more so than in the higher cost areas. Part of me thinks an FHA buyer is less likely to default if they come up with a 3% down payment.
Thanks for writing. What is your take on the credit being offered which is really a loan? Bonnie
Bonnie- I personally think a 3% down payment is pretty fair, given a buyer can get a seller concession for all or part of their closing costs. I think the DPA's are used more where median sales prices are under 200k.
The problem with the DPA is not necessarily the fact that the buyer will not be able to get the downpayment, it may just take a little longer to save it. The problem is that the down payment assistance loans were allowing buyers to enter the market when they were unprepared to buy. I know we all do a great job of advising our customers about having reserves to pay their mortgage in case they lose their job or have an unexpected illness or accident, but if they don't have enough to make a 3% investment on their own, or have a family member that will gift it to them, how will they pay the mortgage if the unforeseen happens. Oh yeah, we will end up right where we are with the highest rate of foreclosures in history. Let's be real, and it sucks that it is harder to close loans quickly, but we need to be mortgage advisors, not just closers...Sorry I got on my soap box there...God Bless...Jason
Jason- I agree with you, a little bit of skin in the game is important. Some people, however, want to keep their $ ina 401k, etc. Typical pre-approval conversation:
Me: And how much money do you currently have in savings for a down payment, closing costs, and asset reserves?
Client: I'm looking for 100% financing.
It's not so much a problem, but wouldn't someone's expectation be that maybe they should have some savings before purchasing a home?
I agree, I think the DPA programs were helping first time buyers buy homes. Not everyone needed or wanted the help. But without the programs there are going to be fewer first time buyers able to purchase. The tax credit won't help with the down payment.
Exactly Laura, like the DPA Program or not, it did increase the pool of 1st time buyers.
I have heard a lot of talk about this topic. In Philadelphia, we are in a big first time homebuyer market and have done a ton of FHA loans on the buy side and have been on the listing side for many of them too. On the buy side, for the most part, our buyers would put down the 2.25 percent but still may get the 6 percent assist. So this has not changed, has it ? That deal is still available. Sometimes, they would go PHFA and get another $2,000 from the state in the form of a bond.
Philadelphia Real Estate
The only change as I understand it is now FHA will require a 3.5% down payment, not sure of the effective date.