Should You Get a Down Payment Assistance?
One of the more controversial ways to raise money for a down payment is through what are known as down payment assistance programs (DAPs). These programs can provide you with a “gift” to help you get a down payment in the size that is required for FHA loans. (Note: Currently the FHA requires a 3% down payment on home mortgage loans its backs.)
Now, there are some guidelines that the FHA purports to follow when allowing gifts for home mortgage loans:
- It has to be a true gift, with now expectation of payback.
- The gift giver can’t have an interest in the transaction.
This means that getting down payment assistance from friends and family (my parents gave us a “housewarming” gift to go toward our down payment), truly charitable organizations and non-profits and government agencies are acceptable.
Unfortunately, DAPs are not all so benign. Many of them are actually “gift” and 100% financing” programs that are offered by the seller, who recommends a “non-profit” that can offer you the “gift.” In reality, these DAPs are little more than disguised loans, which buyers do ultimately pay back — with interest — through the way the home mortgage loans are set up.
While the FHA periodically announces that it is going after scamming DAPs (the IRS calls many of them scams — and so do I), very little is actually practically done. This is because enforcement is difficult, with sellers setting up “non-profits” as a way to funnel (dare we say “launder”?) the money so that it looks acceptable.
If you are looking into buying a home, watch out for these down payment assistance programs. Many of them are not true assistance programs. Instead, do you research and look for programs that have been approved by HUD. You can also check with your local and state governments to find programs that offer assistance to first time homebuyers and to those in need of help scraping together a down payment (but realize that there will be limits on how expensive a home you can buy). Or you can also raise funds from family and friends.
Tags: down payment assistance, DAPs, home mortgage loans, FHA home loans,
mortgage financing, mortgage lenders, 100% financing
