Down Payment Assistance programs eliminated under new law
WASHINGTON, DC (7/30/2008) -- Down payment assistance ("DPA") programs, which have enabled home sellers to contribute to buyers' down payments, have been eliminated in the new Housing and Economic Stimulus Act signed into law by President Bush today. This provision of the new law does not apply to buyers using the $100 down HUD homes program -- meaning that as of October 1, 2008, the only way to buy a home with less than 3% down is through the $100 down HUD homes program.
These down payment assistance programs -- offered by not for profit organizations such as Nehemiah and Neighborhood Gold -- typically received donations from home sellers in the amount of 3% of the sellers' home sale price. The DPA programs then would make a gift to the buyer of that same 3%, charging a program fee of $495. The net result was that home buyers could close on the purchase of a home with only a few hundred dollars of their own money.
This provision of the new law goes into effect on October 1, 2008. In order to participate in a down payment assistance program, a buyer would have to have loan approval prior to October 1st.
The conventional mortgage industry never had embraced the DPA concept; it was only available to buyers using FHA loans. Conventional lenders are insured by private mortgage insurance companies, which saw too much risk in "no money down" home ownership approaches.
Since conventional lenders have become much more restrictive in the past year -- requiring at least 3% to 5% down payments using buyers' own funds -- now that FHA lenders can no longer offer DPA programs, the only low down payment option available to buyers will be the HUD $100 down program.
For more information or to see if you qualify for the HUD $100 down program, click here.