There's been quite a kerfluffle lately in the world of DPAs. What's a DPA? These are Down Payment Assistance programs like AmeriDream and Nehemiah.
The number 1 item stopping first time buyers from buying a home is the down payment. Saving $10,000 or $15,000 is too darn hard in today's world, especially when you're the typical first time home buyer who's in their mid- to late-20's and working at your first (or second) "real" job out of college. The metro Phoenix region was particularly hard hit lately. Since 2004, home prices have appreciated way faster than wages, leaving many renters to assume they'll never save enough for a down payment, so why try?
Lovely, lovely organizations like AmeriDream & Nehemiah Corp have found and used a loophole in the HUD rules that allow them to give first time home buyers a grant that covers their down payment. Grant! Which equals "no need to pay it back". You don't owe Aunt Tilly or Uncle Peter anything. Or even Uncle Sam. The money for your down payment is a gift you never pay back.
Savvy readers are asking "Free money -- Where's it come from?!" Lawyers are thinking, "Loophole? Must be illegal." The more cynical among you are snorting, "Yeah, right. Free money my big toe! Nothin' free in this world."
To quote Ferris Bueller, "Oh contraire, mon frere." (don't blame me for sloppy spelling; I took German, not French)
It's 100% legal, field tested by phalaxes of attorneys over the past 10 or 15 years. It's not really free money but it is a WIN-WIN for everybody involved. For several reasons, DPA loans usually happen in tough markets like we're in now where sellers struggle to sell.
Imagine a triangle with a nonprofit organization like AmeriDream at the top and the Buyer and Seller at either bottom corner. Everybody agrees in the purchase contract for the home that the Buyer will receive from the nonprofit a non-repayable grant covering their down payment. The Seller donates a 'gift' to the nonprofit in the exact amount of that downpayment, plus a couple of hundred bucks for an administrative fee. The nonprofit org channels the money from the Seller's home equity, through the title/escrow company, to the Buyer's downpayment.
It doesn't work all the time, it doesn't work for every situation. But when it works (usually in a buyer's market like we're in now), it's a beautiful thing. A renter becomes a homeowner faster than they dreamed possible, the Seller gets to sell their house when they otherwise might not have, and to a deserving first time buyer no less. And the Realtor - namely me - gets a little misty-eyed thinking about the Hallmark moment unfolding before her eyes. Sniff!
Enter Big Brother, in the form of HUD. They issued a statement on October 1, 2007 that essentially outlaws DPAs completely as of October 31, 2007. Being as HUD's stated mission is to provide moderate and low income folks the chance at home ownership, I'm not sure where this helps. But I won't talk politics, or we'll be here all night. Suffice it to say that I think HUD's ruling is typical Washington: bad policy, ill timed and poorly communicated.
Realtors, Buyers and Sellers all over the US had a few weeks of nail biting while we waited for a court ruling on whether HUD could axe a program with so little notice. Finally on October 19 word came down that AmeriDream has been granted an extension and can continue funding DPA loans until at least February of 2008.
Why's this matter? Metro Phoenix is in the midst of a perfect market for first time home buyers to use Down Payment Assistance programs to get into homes they never hoped to own. Tons & tons of homes for sale... many sellers anxious to sell... lots of sellers with equity enough to spare you a teensy bit for a downpayment... mortgage rates are historically low.... and there's free money to make your downpayment.
I've got an AmeriDream deal closing next week (Lord willing and HUD notwithstanding). The buyer is a lovely young woman, a single parent who manages a local restaurant. She's buying a great loft condo in a very nice neighborhood. She's bringing a grand total of $1,022.45 to the table. For about the amount of 1 paycheck, she's morphing into a homeowner.
Awwww. Sometimes I lurve my job. Sniff!
If you're a renter thinking you'll never save the money for a down payment and you'll never own a home, think again. Then call me. Quickly, before Big Brother shuts off the spigot of DPA money.