Down payment assistance – A boon for home buyers!
Every average American family dreams of owning a home of their own. But this dream becomes a reality only for a select few. Most folks who belong to the lower and middle income group are still unable to afford homes of their own. The reason for this is mostly their inability to make a down payment on a new home.
What is downpayment assistance?
You can get asmuch as 97.5% of the home sales costs financed through home loans. But you are stillrequired to raise 3% of the final cost of the home on your own. Plus, there isthe 1.25% closing costs that form a part of the 3% that has to come out of yourpocket. And if you are from the lower or middle income group raising this 3% isindeed quite a challenge. You cannot always rely on your savings or help fromfamily and friends. Now, down payment assistance programs can give you a realhelping hand and help you own a home of your own.
Down paymentassistance programs offer home buyers gift funds that can be utilized to coverthe initial costs of buying a home. The great news is that these funds need notbe paid back. Down payment assistance programs are offered by non-profitorganizations committed to helping people become home owners. The down paymentfunds offered by these organizations usually range from 3% to 6% of the home’ssale price.
How does itwork?
Down paymentassistance may seem too good to be true for a home buyer who is in desperateneed for money. But it is a very smart business proposition – one that involvesthe seller, the home buyer and a third party which in this case is a non-profitorganization. Here’s how this program generally works:
1. The buyer looks for a suitable home. Some down paymentassistance organizations have a list of homes for sale from which the buyer maychoose to own a home. The buyer must also check with the lender, in most casesthe FHA and get the mortgage pre-approved.
2. If the seller agrees for the down payment assistanceprogram, she must make a donation (which is usually tax deductible) to thenon-profit organization instead of reducing the sale price of the home. Theorganization, on the other hand, uses the donation to provide funds for thebuyer. The seller gets to sell the house, the buyer can afford a new home andthe organization receives a portion of the donation. It’s a win-win situationfor everyone. The reason for the third party involvement is because federalhousing regulation prohibits a seller from directly giving a buyer down paymentmoney
Advantages of downpayment assistance programs:
There are manybenefits to the buyer. The buyer can buy a home even if she doesn’t have moneyfor down payment and she does not have to pay back this fund. The seller canattract more number of buyers for his home under this program. The seller doesnot have to lower the sale price of his home and usually gets a tax deductionwhich he can utilize to offset the capital gains tax he has to pay for the soldproperty. This program is profitable for all parties involved.
Organizationsthat offer down payment assistance:
There are many organizationsthat offer down payment assistance programs. AmeriDream Inc. offers a popularassistance program but buyers must purchase a home enrolled in The AmeriDream DownPayment Gift Program. Nehemiah is a private California non-profit organization thatoffers down payment assistance programs to first time homebuyers. Under theNehemiah program, buyers can get down payment assistance for up to 6% of thefinal contract sales price. The buyers can use this fund as a down payment orto cover the closing costs on the home. Severalbuilders like Remington Homes in Illinoishave associated with Nehemiah to offer gift funds to first time home buyers.There are other organizations like HART, Partners in Charity, Family HomeProviders, Futures Homes Assistance, Genesis, NewSong, Responsible Home,Quickdown and American Family Funds that provide down payment assistance.
Things to keepin mind while opting for down payment assistance:
There are a few things to consider while opting fordown payment assistance. First, use a real estate agent to appraise the valueof the home you wish to buy. Some sellers inflate the price of their home tooffset the donation to the third party organization. Second, look around forthe down payment assistance program options available to you. Make sure you aredealing with a reliable, ethical organization- AmeriDream and Nehemiah arewell-recognized down payment organizations. Ask a lot of questions and get thefacts straight. Be well-informed. Once you’re through with all theseprocedures, sit back and enjoy your very own home.
Annie Celsia is an expert on mortgage planning and homeownership who works as a freelance writer for Illinois Home Builder, Remington Homes. She writes interesting and informative articles that help home buyers make smart financial decisions while making a very important decision in their life – investing in a new home.
