Private First Time Home Buyers Down Payment and Mortgage Assistance Programs

1. A note of caution about non-government first time home buyer’s down payment assistance providers.
2. Private down payment assistance providers.
3. Please read our Las Vegas Real Estate Blog and discuss all related topics in our real estate and mortgage forum.

A note of caution about non-government first time home buyer’s down payment assistance providers.

Masoud’s Note: These organizations act as intermediaries and have to be non-profit in order to do business with FHA. They only help those buyers that buy from a builder or resale home seller who is enrolled in their program. That is, the home or condo seller gives the contribution to these entities on paper only and they give the contribution to the buyer minus a commission. No money actually changes hands and all is done through the escrow process. As the builder has to price their homes and condos competitively, the builder or seller has to discount their price, his charitable “down payment assistance” substitutes the possible discount. The home or condominium buyer pays the full price and gets the down payment assistance in place of the discount. To me, they helped fill a loop hole in the law, at the same time they assist buyers who would not be able to buy a home. These companies “charitable” down payment gifts have the following conditions.

1. Gift funds up to 6% of the final contract sales towards your down payment and/or closing costs.
2. Gift funds for both first time and repeat home buyers.
3.  Gift funds for both new construction and resale homes.
4. No repayment of gift money.
5.  No income or asset limits.
6. No geographical restrictions.

First time home buyer down payment assistance programs (DPAS) help buyers with the 3% down payment required for a government-insured FHA mortgage. Nearly a third of FHA loans nationally last year involved “charitable” down payment assistance to the tune of hundreds of millions of dollars. Typically these grants are offered to low-income buyers who would otherwise be unable to afford the down payment. Without their “charitable” status, down payment assistance program providers couldn't do business with the FHA.

Some “charities” give the customer a down payment, and the builder reimburses the charity plus a processing fee. The programs offer a similarly popular service for individual home sellers, usually through their real-estate agents.

In Nevada the seller can contribute up to 6% of the selling price to the buyer’s closing cost, down payment, etc. However the lender has to approve this contribution.

Federal law prohibits home builders from helping home or condo buyers directly with down payments. For years, however, builders have partnered with charities to funnel money to buyers. The IRS is examining 185 such charities, which have helped hundreds of thousands of people buy homes with government-backed mortgages.

First time home buyer assistance programs are in danger of being wiped out by the IRS. Calling them scams, the IRS plans to revoke the “charitable” status of down-payment assistance programs that have fueled the business of builders.

"So-called charities that manipulate the system do more than mislead honest homebuyers and ultimately jack up the cost of the home," IRS Commissioner Mark W. Everson said in a statement. "They also damage the image of honest, legitimate charities."

IRS problems stem from two facts. The first is simply that home buyers that use DAPS are more likely to default on their loan. The foreclosure rate on all FHA mortgage loans is around 3%. For buyers who use gift funds for their down payment the foreclosure rate is approximately 6.5%. However these foreclosure rates are much smaller than other sub-prime mortgage loans serving low to moderate income buyers.

The other issue with DAPS is that they are typically reimbursed by the home seller or builder. This means that instead of haggling over the price of the home, the buyer accepts the initial price of the seller. The seller will reimburse the down payment provider and will typically make at least an extra .5%-2% on the home.

Some say that builders and sellers are including the down payment assistance into the price of the home, causing inflation of the home’s value. The IRS said, a year ago, that many of the down payment assistance programs do not qualify as charitable organizations because the gifts end up benefiting profit seeking sellers.

Private down payment assistance providers

http://www.ameridream.org/

AmeriDream helps first-time, and low and moderate income individuals and families become homeowners. AmeriDream’s Down Payment Gift Program gives buyers up to 10% of the sales price of a home for a down payment or closing costs.

Newsong Down Payment Assistance Program

Buyers qualify for gift funds by getting approved for a home loan from a lender who accepts gifts from a nonprofit organization, and by purchasing a home from a seller who agrees to make a donation to the program after the home closes. Money given to the buyer is a true gift.

HART Gift Program

Home buyers do not need to be first-time home buyers to qualify for HART gift funds and can receive up to $15,000.00! (The amount of the gift is based on the home buyers need and is not a set percentage of the sales price.) 

Partners in Charity

They will give you 2% to 10% down payment on your home purchase, depending on your needs. PIC is a non-profit organization dedicated to helping you become a homeowner. Their mission is to gift down payments to qualified buyers and help the community as a result.  PIC provides a down payment with no repayment and no second mortgage or lien of any type. It is a true gift to you!

Neighborhood Gold

Based on ongoing discussions with the Internal Revenue Service and after careful consideration of Revenue Ruling 2006-27, Buyers Fund will discontinue providing down payment assistance after July 3, 2007. RIP.

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