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August 29th, 2008 4:49 PM by David W. Welch
The mortgage bailout law recently enacted, starts effecting the market place today. While there were a number of incentives in the law, there were a couple of items that make getting an FHA loan a little harder for cash strapped buyers. They are somewhat related, because they both impact the amount of money buyers need to come to closing. The increase in the required downpayment from 3% to 3.5% is pretty straightforward. This does not seem like much of a change, but in conjunction with the elimination of seller funder down payment assistance it can really impact a number of buyers.
In the past, sellers could pick up the buyers down payment by going through a third party not for profit. The two biggest players in this were Nehemiah and Ameridreams. The seller makes a contribution to one of the programs, and they in turn give a gift equal to the seller contribution to the buyer for their down payment. The programs make money off of a handling fee they charge the seller to facilitate the exchange. The new law makes this type of program illegal. So, for those buyers who would normally be relying on the seller to help with the down payment, home ownership may be delayed until they save the 3.5% required. Other buyers are borrowing from their 401K or IRA's to make the down payment, with the plan to replace it when they receive the tax credit in the spring.
This seller funded down payment assistance is good until the end of September, but many if not most lenders are not allowing it after today. Why? Because there is such a demand for this, with the September 30th deadline looming, they are afraid they will not be able to close in time.
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