Wednesday, March 5, 2008

Down Payment Assistance Program

We are excited that the down payment assistance program is still available after the court ruling earlier this week. The down payment assistance program was about to expire. This means that the 3% minimum down payment requirement for FHA loans can be paid by the seller using the program. How this works is that the 3% down payment is shown as a gift from a non-profit entity such as Nehemiah or Ameridream. The funds for the gift actually come from the seller and these monies are transferred in escrow. This allows the borrower to purchase with no money down and can even move in with no money if the seller also agrees to pay closing costs. In this marketplace, if the seller were willing to take 6% less than the asking price, in effect, the borrower would have a 3% down payment from the seller and 3% to cover all closing costs.

With FHA, no cash reserves are required and less than perfect credit is acceptable. A buyer could purchase a property without any funds or cash reserves. This strategy is now commonly used in short sales negotiations with banks. A new FHA modernization bill is expected to come out over the next couple of months which may eliminate the down payment assistance program but the new changes would likely reduce the down payment requirement to only 1-1/2% instead of 3%. We are hopeful that the new higher FHA loan limits will be in effect within the next 2-3 weeks. The new conforming loan limits may not be available for many weeks beyond that.

FHA loans are becoming the number one financing option for many borrowers. Last month, 25% of the volume of Cherry Creek Mortgage was attributed to FHA loans. We expect that percentage to increase to 40% over the next three months.

If you are not 100% comfortable with FHA financing at this time, give me a call and I will put you in touch with my lender to help you out.

Information from Don McGlinchy at Cherry Creek Mortgage

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