The clock is ticking for Vicky and Nathan Cunningham.
The Hephzibah couple needs to find a house and close on the loan within the next four weeks or they'll lose their down payment assistance -- and likely not become first-time home buyers in the near future.
One of the provisions of the Housing and Economic Recovery Act of 2008 signed into law in July was the elimination of a commonly used no down payment program: seller-funded assistance on Federal Housing Administration-backed mortgages.
After Oct. 1, the only no down payment mortgage left on the books will be a VA loan, said John Marcus, a vice president at First Bank of Georgia.
Andy Passmore, at The Mortgage Center in Evans, said nearly half of the brokerage's business comes from this type of loans.
"People knew it was out there, and it was the way it was done," Mr. Passmore said.
People hear of relatives and friends getting a mortgage with no money down, and that's what's expected when they come through his door.
"It was legit and aboveboard," Mr. Marcus said. "Until now, there wasn't a problem with it."
Lawmakers eliminated the program because nearly 40 percent of FHA borrowers who went into foreclosure in the past year used this kind of down payment assistance.
It works like this: The seller makes a donation to a nonprofit agency, along with a fee, that gives the money to the buyer as the down payment for a house. The seller unloads a property. The buyer gets into a home with no money out of pocket.
"Recent research by Zelman & Associates reports that 10 to 25 percent of potential home buyers will have no way of securing home ownership without (seller-funded down payment assistance), which will also undoubtedly have far-reaching implications for the real estate industry at large," Scott Syphax, the president of The Nehemiah Corp. of America, said in a statement.
Nehemiah is one of the prominent nonprofit agencies that act as the go-between. Mr. Passmore said he uses them so often that he calls them Nehemiah mortgages.
Mr. Marcus said he has never understood the logic behind the program.
"One of the foundations over the mortgage industry is the seller is not allowed to give the buyer money. It can lead to abuses," he said.
The change doesn't affect all types of down payment assistance. Programs such as those offered through AmeriDream or the Augusta Housing & Community Development Department will still be allowed to give assistance grants to potential home buyers, Mr. Passmore said.
The Cunninghams will be among the last of Mr. Passmore's Nehemiah mortgages.
Local banks aren't even accepting applications though it is valid until the end of the month.
The program's impending doom has put some stress on the Cunningham family, who wants to move from Hephzibah to Columbia County to be closer to work.
They had a house in mind, "but someone nabbed it from us," Mrs. Cunningham said.
They have their eye on three others, but they need to complete the deal and sign on the dotted line before the deadline.
The family of five has been living in a double-wide mobile home, and it is time for the kids to have their own rooms, Mrs. Cunningham said.
Without the assistance program, they don't have the money to put down on the house.
"I have a little concern, but I'm praying that it will go through fine," she said.
Reach Tim Rausch at (706) 823-3352 or timothy.rausch@augustachronicle.com.
LOAN CHANGES
Changes to FHA-insured loans in the Housing and Economic Recovery Act of 2008 that take effect Oct. 1:
- The down payment for a mortgage will increase from 3 percent to 3.5 percent. For the purchase of a $150,000 house, the buyer's minimum down payment will go from $4,500 to $5,250.
- Buyers will not be able to use seller-funded down payment assistance programs where the seller "gifts" the down payment to the buyer through a nonprofit agency such as Nehemiah Corp. of America.
Comments
I know that coming up with 20% of the purchase price can be difficult. I wasn't aware there were loans that only required 3% to 3.5%, that someone else paid, effectively costing 0% down. With all of this stuff out there no wonder people couldn't pay for their mortgages, they don't know how to save for a big purchase. If you want 0% join the military and get a VA loan ....
So, the loan business will return to the "sufficient collateral before securing a loan" concept. Who knew? The Feds need to stop trying to run these businesses and stop trying to change their lending practices. (look what they've done to the health care business)
What about the rent to own option? The seller puts all the money into a special account that deducts the mortgage for the family and the extra money earns interest and is used towards the down payment. In this way, the people can rent while trying to buy without coming up with the down payment until it collects enough for the banks to be satisfied. (??) Seller would have to charge a little more for rent, but this will at least satisfy both parties as well as a bank would it not?
I suspect in time we will come to realize the sanity, safety and good sense of the old 20% down payment. If these buyers are that tight, they may be better off letting this "deal" go. The man wants his money - a lot of it - every month, just miss a couple of times and you find yourself in a deep hole. Play it safe, especially when the economy is looking a bit shaky.
Although people "should" save money for a down payment, and emergencies, in this society now it just does not happen like it used to. So, if they take away the DPA, the majority of these people will not be able to buy. Then, the builders will not be able to sell, as the previously approvable people are now not approvable. The builders will then not have work, which means the carpenters will not have work, nor the electricians, the plumbers, the brickmasons, and then the truck drivers, the buliding material companies, etc. It will be a disastrous effect on our economy. Another question, as Mr. Marcus pointed out, the VA loan is still 100% financing, and yet we do not hear about high delinquencies and foreclosures. And veterans get VA eligibility after an Honorable Discharge of any period, even a 3 year stint. Half of VA loans are not current military. I do not hear anyone saying they have high VA delinquency, or that we should take away the VA 100% program.
this is incredible. i had no idea thiese programs were available to offer doen payment assistance. no wonder the industry is in the tank.
These loans were originally intended for first time home owners, like newly weds. Now, those of you that think it's a great idea to do away with it, your kids will be coming to you for the down payment money, just like 'the good ol' days'. Enjoy. These people had to pass credit qualifications and income requirements. These were not any type of subprime loans. Not at all.
As far as the down payment assistance program going away that is a true shame. My comment is intended for the one who said about the VA loan. It does not matter if the soldier served 2, 4, 14, or 24 years they have earned the right to get a VA loan and just because the government isn't calling foal to the VA program people get upset. My husband is active duty military and we have yet to use the VA loan program but you can bet that when we buy a house the VA program will not be available to military because they will have taken that away. May be the reason why they haven't reported delinquencies or foreclosures on VA loans is because there isn't that many of them!!!
That was the point I was making. Just because someone doesn't have down payment in a house, does NOT mean they will default easier- look at the VA loans. Those people find a way to make their payments. I hope they do not take away the VA loans, those people have earned this program.
It seems to me that if the future homeowner can't afford a down payment then he or she is more likely to default on future mortgage payments. This may sound harsh but that glaring 40% statistic is a strong witness. Basically in this country, if you want to own a home you certainly can own a home, but you have to pay for it. You can buy it outright or you can ask a bank to loan you the money. If the bank doesn't want to loan you the money they have the right to refuse you as a bad risk. It isn't personal; it's just business. This stuff about everyone having the "right" to own a home doesn't sound "right" to me. Try walking into a car dealership and telling the owner that you have a "right" to that shiny new red Ferrari and if he doesn't approve you for financing and sell it to you, you are going to sue him. I think this is one big factor in our messy economy right now; politicians insisted that banks approve everybody for a home loan because they had a "right" to own a house and now those same people are in worse shape than ever because they can't make the payments on those houses they had a "right" to have. You don't have the "right" to own anything if you can't pay for it.
Everyone knows that when you buy a house, the mortgage is just the start of it. Repairs and maintenance are a constant drain. We are updating our house. We've spent $30,000 and we're not done. The HVAC alone was over $6,000. So if they can't afford to save a down payment, how do they maintain their houses?
Most people who "own" a home don't really own it; the bank owns it until the buyer pays it off. Most of us could never buy a home any other way. So in that respect it is a good thing that mortgages are available to average shmoes like me. However, if a person can't buy a house yet because he can't afford the payments, then he should wait a bit more and work and save and pray a lot until it becomes possible. As a nation we have forgotten how to live within our means. We want to own everything now but pay for it later; we can't afford what we want but we purchase it anyway; our eyes are bigger than our stomachs. We are in such a mess as a result. And to answer your question, corgimom, they don't maintain their houses because 40% couldn't come up with a down payment in the first place and they can't afford their monthly payments at all.
corgimom and churchi, a lot of these people live beyond their means to start with and this is only one of their debts. When my husband and I were newly weds we recieved one of those loans because we were first time buyers and just started a business that was growing we still had to pay a few thousand down, we were prepared to pay more but to our delight they told us we would qualify for this. It doesnt pay your down payment for you for free it just requires you to have less of a down payment. It is not as though all people who get this are broke and can not afford it, Ours was a nice assistance program to people who work hard that are just starting out with their first home. They offer a few different programs. I can't say how the others worked maybe they were different. They want people to succeed and keep their home, its not their fault people live beyond their means. a lot of these people have the income but have to much other debt because their money blows a hole in their pocket. My sister is a perfect example!! Just because you get those 5k credit in the mail don't mean you have to go spend it with a variable apr., and the new car after the new house, then the boat and dont forget the big screen tv's!!! Now it is being taken away from people who could use it. Why do the lazy non working baby factories get supported completely for life for not working but a working man can't get a little assistance because some people either cant control themselves or lost their job. Stability is good for children and families. People buying a home is good and maybe instead of canning the whole thing they need to better screen people and check credit better and stop letting cosigners sign when buyers dont qualify. There is the first sign they can not afford it right there. We have no trouble paying our mortage or maintaining our home. The key is to take care of the problems as they come not let them build up and get worse before you finally take action, well and of course not buying a money pit to start with or one that is realisically beyond your means.
pete... we on the same wavelength!!! good point about the kids!!! LOL. Also very good points newsflash!!, I agree!!
I believe you can still get first time homeowner at 3-3.5% down payment, this is just for people getting loan with 0% down....
Check out this video www.supporthomeownership.com/news/default.aspx. There's an effort in Congress by both Democrats and Republicans to reauthorize downpayment assistance programs with new reforms under a bill called H.R. 6694. You can learn more about H.R. 6694 and voice your support for it at www.supporthomeownership.com and send a letter to Congress. Non-profit downpayment assistance programs work and are vital to homeownership and the economy. These programs help FHA's target population of individuals and families (low-to moderate-income, minorities, women or first-time homebuyers) become homeowners. These homebuyers must meet HUD's rigorous loan qualifications in every respect, but are unable to save the needed downpayment. HUD has been spreading misinformation about non-profit downpayment assistance programs for years. HUD doesn't want you know they have a 94% success rate. There is still time to have Congress bring back downpayment assistance programs with reforms but Congress needs to hear from you. Click this link http://takeaction.ahaanow.org/ahaa/issues/alert/?alertid=11521436&PROCES... to voice your support.
Thanks for the links Ameridream!!!!!
Good link ameridream, but HUD seems to have their teeth sunk in this time. To me, it is an out of focus procedure. As I said earlier, these were all FHA backed loans which means these couples had to face government guidelines in order to be accepted. These are not the predatory loans that are known as subprime or non conforming. This will only serve to slow down the lagging building problem. Not that these DPA buyers were buying new homes, but if they can't buy homes now, it means people like you and me are going to find it harder to sell our homes and the whole process will slow down. This is one law that needs to be rethought.
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