24 June 2008

FHA Still Backing Zero Money Down Home Loans

It's called the DAP, Down-payment Assistance Program, and it allows buyers to purchase a home with no down payment, even though FHA regulations require 3% down.
The offers -- including "100% financing" -- are made possible due to down-payment assistance programs run by nonprofit organizations. These programs are funded largely by home builders and also by private homeowners desperate to sell. The seller-funded groups provide enough down-payment money to buyers that they can qualify for a mortgage backed by the Federal Housing Administration, which requires at least a 3% down payment.
Basically, realtors and builders set up non-profits, and the home seller contributes to the non-profit to cover closing costs and down payments, which are made as grants to the buyers.

Of course, that money from the seller gets tacked onto the selling price. So if a condo were to sell for $100K, they would sell it for $110K, with 7K covering closing costs, and 3K covering the down payment required by the FHA.

Net effect: the buyer has no skin in the game.

They now account for 34% of downpayments on FHA loans.

Thankfully, the current FHA overhaul in Congress eliminates this...for a while, at least.

In any case, how about letting the pictures do the talking:


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