Shared Equity down payment assistance - a new form of first-time home buying help
(January 28, 2009) -- A new form of down payment assistance is sprouting up in a few counties around the United States - called Shared Equity Down Payment Assistance ("SEDPA"), this type of first-time home buyers' help involves no monthly payments or interest ever.
In Shared Equity Down Payment Assistance, the county buys a 20% interest in your home with you. They supplement your available down payment (buyers must contribute a minimum of $1,000 of their own funds) by enough adding county funds that your down payment reaches 20%.
Unlike traditional county down payment assistnance programs, home buyers never make any payments to the county for the use of their funds, and no interest ever accrues or is ever due to be paid by the buyers. Instead, when the buyers decide to sell or refinance their home, the county receives 20% of the value of the home at that time.
Counties are taking a risk that real estate values will fall further, since 20% of the value when the home is sold or refinanced could be a lower amount than the counties' original down payment assistance dollar amount (for example, if the amount of original assistance on a $210,000 purchase is $41,000, if the home was sold later for $180,000, the buyer would only pay the county back $36,000).
On the other hand, if home values increase, both the county and the home buyer benefit from growth (in the above example, if the home were to sell for $250,000, the homeowner would keep $15,700 -- when all they originally put down was $1,000).
"Counties with Shared Equity Down Payment Assistance programs are betting that real estate values are going to rise from where they are now," says Perry Sawano of Integrity Financial. "Otherwise, with no payments or interest coming in, they would be losing money over time. It's like having your mom and dad buy your home with you."
For more information, see sharedequitydownpayment.org