I recently posted this on a national blog:
Down Payment Assistance for years made FHA loans into 100% financing for lots of buyers. The 3% down payment requirement (now 3.5%) was paid by the seller instead of the buyer. The seller would pay it to a 3rd party non-profit, along with a processing fee, and the non-profit would deliver it to the closing table to cover the needed money down on the property.
All that changed October last, when new legislation did away with the tool that made it so easy for first time home buyers around Atlanta and the rest of the US qualify to buy a home, when funds saved were tight.
It could be on it’s way to a comeback, though. Here is the verbage I received from Ameridream – one of the largest providers of down payment assistance – this morning:
We have been informed that a bill to reinstate reformed downpayment assistance will be introduced as early as tomorrow. The bill is expected to be introduced by Congressman Al Green (TX) with bipartisan support. The bill will have the same language as unanimously passed last year by the House Financial Services Committee.
We will keep you informed as we continue to support efforts to reinstate downpayment assistance.
So would this be a good thing for the housing market? That depends on who you ask. I have read various numbers showing the default rate being considerably higher on FHA loans that utilized down payment assistance, compared to FHA loans that did not use this. And that probably stands to reason.
But, used responsibly, it can be a good tool, and help more qualified people get into homes. Personally, I would like to see a variation on the old DAP. Perhaps splitting the down payment between the seller and buyer, with no other gifts allowed to cover the money down. To me, that makes sense. But then, I did not write the legislation.