Not long ago first time home buyers had the opportunity to purchase a home with zero down (no down payment). Setting aside whether this has contributed to our current mortgage melt-down, there were many buyers who benefited from such loans and would never have been able to purchase a home without them.

Now that such loans no longer exist (due to the inability to obtain mortgage insurance on such loans) the only options today are the “Seller Down Payment Assistance Programs”. The two prominent ones being the Nehemiah and the Ameridream.

Firstly, these programs are expected to disappear as early as October 1^st, so if you are dependent on a Seller paid DPA program you need to make your move now.

How does the Ameridream and Nehemiah Program work?

In quick summary, the buyer asks the seller to pay the 3% down payment (in addition to a fee).

What are to cons to such Down Payment Assistance Programs?

The difficulty with these programs is that if the buyer can’t cover the down payment then they will also likely lack the funds to cover the closing costs & pre-paids as well. When you combine the 3% DPA (or more) with the CC & PPaid costs, the percentage the seller is asked to cover can average a min. of 6%, money that would have typically been part of the sale price reduction. This combined with the fact the appraisers are getting tough, can make a home purchase using a DPA difficult. Typically, the only way for such a program to work and pass the appraisal is if the home is being sold well under market value. For example:

$200,000 Home Sale Price

- 6,000 Down Payment pd by seller

- 6,000 Closing Costs & Prepaids pd by seller

= $188,000 sale price to the seller

but $200,000 sale price to the appraiser

What are the pros to Down Payment Assistance Programs?

There are sellers out there desperate to sell, especially in the higher price points. These programs work especially well for someone that may already have a percentage of funds to contribute to the closing costs & prepaids. DPAs may also be the only way a buyer is able to get their first home, and although such loans can be less desireable to a seller, many sellers can’t afford to be picky.

In summary, ask me or ask your lender if you think this may be a program you can benefit from; it’s close to becoming extinct and has already passed the first round of congress. For more information:

For more information on Seller Assisted Down Payment Programs:

http://www.fha.com/fha_programs.cfm

http://www.getdownpayment.com/content/faq.asp