BREAKING NEWS: Clarification on October 1st DPA deadline from H.R. 3221
What happens on and after October 1st?
Nehemiah has confirmed with HUD/FHA that, contrary to information that has been circulating, the home sale/closing date generally is irrelevant when determining whether downpayment assistance may be provided. It is the credit/loan approval date that is relevant, as the law and HUD have made clear.
What is the precise definition of "credit approved" as described in the housing bill (H.R.3221)?
If a loan is manually underwritten, the approval date is the day on which the underwriter signs the Mortgage Credit Analysis Worksheet (MCAW) or the FHA Loan Underwriting and Loan Transmittal (LT).
When is the last day gift funds can be requested from Nehemiah?
December 31, 2008 is the last day Nehemiah will fund DPA gifts (as credit approval, or a Rate Lock, obtained on September 30, 2008 would typically expire on this date).
What is a Downpayment Assistance Program?
Downpayment Assistance (DPA) Programs provide gift funds for downpayment and closing costs to qualified homebuyers using an eligible loan program, such as FHA or a conventional loan that allows gifts from charitable organizations. Gift Funds of 1% to 6% of the final contract sales price can be received, depending on the particular needs of the homebuyer.
Can we use downpayment assistance to help payoff a homebuyer's debt as well as for downpayment?
No, you may not use DPA gift funds to payoff homebuyer debt. According to HUD guidelines, gift funds cannot be used to pay off homebuyers' consumer debt. Gift monies can be used to pay downpayment and closing costs.
What is a "DPA Participating Home?"
Any residential property can be purchased using downpayment assistance as long as the seller agrees to the DPA participation requirements. Both new and existing homes can be purchased using this program. In exchange for helping the seller find a qualified homebuyer, the seller agrees to make a contribution to the DPA provider of 1% to 6% of the final contract sales price, plus pay a nominal processing fee.
Doesn't the seller basically pay the homebuyer's downpayment?
No, the contribution paid by the home seller is not used for the homebuyer's downpayment assistance. Providers give the gift funds to the homebuyer from a pre-existing pool of funds, and wires it to the closing/settlement company before the loan is closed. The seller pays a contribution to the provider only after the loan has successfully closed. The contribution collected from the seller replenishes the provider's pool of funds for future gifts to other homebuyers.
What are the basic program requirements?
There are 4 basic program requirements:
- Both the homebuyer and seller must agree to participate in the DPA Program;
- The homebuyer must use an eligible single-family 1-4 unit loan program such as an FHA loan or a conventional loan that allows gifts from charitable organizations;
- The homebuyer must purchase a DPA participating home;
- The homebuyer must be the primary occupant of the property (non-occupant co-borrower(s) may assist primary occupant to qualify for the mortgage).
Are there any program restrictions for homebuyers?
There are NO income, asset, or geographical restrictions. And, the program is not restricted to only first-time homebuyers. Downpayment assistance programs require that the homebuyer who receives the DPA is the primary occupant of the property.
Is the contribution that the seller pays to the DPA provider considered a charitable donation for tax purposes?
No, the seller contribution that is paid to the provider is NOT tax deductible as a charitable contribution because the seller derives the full benefit of the contribution through the sale of a home. However, this contribution may be tax deductible as a cost of sale, similar to that of a sales commission. Sellers should contact their personal tax advisor for questions regarding tax deductibility.
How can you afford to give away money?
DPA providers have a pool of funds that comes from contributions and processing fees that are paid by the homebuyers, lenders, builders and sellers who use DPA programs.
How can it be a gift when the seller increases the sales price of the home?
This is not how downpayment assistance programs work. The sales price of the home must always be supported by an appraised value. If you have any questions or concerns regarding the sales price of the home, please contact your lender.
Can any real estate agent utilize Downpayment Assistance Programs, and what properties can be sold to DPA homebuyers?
Any real estate professional can use downpayment assistance programs. There are no enrollment or registration requirements. Properties sold to DPA homebuyers are financed with a mortgage loan that allows gift money from a charitable organization. Typically the mortgage loan is an FHA or a conventional loan that allows gifts from charitable organizations.
Why and how do sellers agree to make their homes "DPA Participating Properties?"
Downpayment assistance programs make homeownership available to the largest pool of homebuyers in every market in the nation. Being able to market your listings, as "Free Gift Money Available - Zero Total Cash Can Move You In" will greatly increase the exposure of your property listings. Sellers benefit with more qualified showings from pre-approved prospects. This usually results in a faster sale, usually at full price!
Can any mortgage originator utilize DPA?
Yes, any mortgage originator can use downpayment assistance. Mortgage originators must use an eligible single-family 1-4 unit loan program such as an FHA or a conventional loan product that allows gifts from charitable organizations.
Do DPA transactions take longer to close/settle?
No, DPA transactions do not take longer to close/settle. Mortgage lenders process and underwrite the loan the same way regardless of the source of gift money. Mortgage lenders request DPA Gift Funds on behalf of the homebuyer, and provide simple closing instructions to the closing office. Downpayment assistance professionals do the rest—it's that simple!
If I refinance my existing home loan can I get DPA gift funds?
No, you may not receive DPA gift funds when you refinance your existing home loan. Downpayment assistance provides gift funds to assist people in obtaining homeownership.
Do I have to repay the gift?
No. The gift funds are free monies offered by DPA providers to qualified homebuyers requiring no repayment, no silent second mortgage, and no re-capture penalties. The money given to the homebuyer is a true gift.
