Down Payment Assistance
Down payment assistance ("DPA") programs are no longer available for use with FHA loans -- but HUD's $100 down payment program is still available, with more homes to choose from than ever. As of October 1, 2008, the Housing and Economic Recovery Act of 2008 eliminated seller-funded down payment assistance, essentially since they positioned buyers who in fact had no down payment money of their own as if they had down payment funds in the amount of 3% or more of their new home purchase price.
In a traditional down payment assistance program, instead of negotiating a lower purchase price than the seller's listed price, a buyer would ask the seller to make a "charitable donation" of up to 6% of the purchase price to a not-for-profit organization. The not-for-profit would then make a gift of that same amount (less a "processing fee" of around $500) to the buyer, who would then show that amount on his loan application as funds he or she had available for use as a down payment, to be given to the seller at closing.
When all the dust had settled, the only funds a buyer would have had to bring of his or her own were the $500 processing fee -- and someone with only $500 of his or her own funds in a home turned out to be much more likely to go into default on the mortgage, compared to a buyer with 3% (usually several thousand dollars) down.
This has dramatically changed the landscape for first time home buyers and others with little or no down payment money.
There are currently only two ways of buying a home with almost no money down:
- Buy a HUD home using HUD's $100 down payment program, or
- Apply for a grant from your local county
County grants are limited to certain areas, and strict total household income limits apply. For people who have revolving credit bills (such as car loans, student loans or credit card payments), it's difficult to qualify for financing under those limits. With hundreds of thousands of HUD homes available across the country, HUD's $100 down payment program is the easiest way to buy a home with almost no money down.