The best-kept secret behind the sustained strength of the residential real estate market is the creation of a new pool of buyers who can afford their mortgage payments but lack the cash for a down payment. In the past these potential buyers had little hope of owning a home. Today, thousands of these individuals are becoming homeowners.
According to both HUD and Minneapolis Federal Reserve, the number one barrier to homeownership in the U.S. is the lack of downpayment money. With President Bush's initiative to increase minority homeownership by 5.5 million by the year 2010, there is an increased need for organizations that can provide assistance through the use of private capital.
Through the use of private capital, the non-profit down-payment industry now makes possible over 17,000 home purchases each month for low to moderate income buyers.
Today these Downpayment Assistance Programs (which are not just for 1st time homebuyers) are helping many people live the dream of home ownership.
These organizations are supported through contributions made by home sellers. The donations help to replenish the pool of funds that are used for future buyers. Additionally the non-profits charge a small service fee, the proceeds of which allow them to stay operational.
Buyers are provided with gifts from the non-profits, which can be used towards their downpayment and/or closing costs. These are true gifts that do not need to be repaid. The grants range from 2%-10% of the purchase price of the home. Home sellers typically agree to participate because they believe that they are receiving a fair offer for their home while at the same time they are benefiting from making a donation to a non-profit organization.
Benefits to Home Buyers
- Get into a home
- Begin building equity
- Start taking advantage of tax benefits
- May not have to deplete their entire savings
Benefits to Home Sellers
- Expose their home to a larger pool of buyers
- Typically will receive full price offers
- Sell their home faster
- Added benefit of making a donation to a non-profit
The organizations differ slightly with some providing additional benefits for the homebuyer. For instance the Home Downpayment Gift Foundation has a program called "Home Mortgage Protection Plus". This Program covers gift recipient who are enrolled in the Platinum Program against involuntary loss of employment. Should the gift recipient(s) lose their job during their first year of home ownership, the Foundation will provide for up to six months of mortgage payments (maximum of $1800.00 per month in P.I.T.I.) on their behalf.
The non-profits strongly encourage Home Ownership Counseling prior to the home purchase and some provide post-purchase counseling to its gift recipients.
The Gift Programs generally participate with FHA, Conforming, and Non-Conforming Loan Products. The downpayment assistance program can be used for Single Family (1-4 unit) homes, Manufactured/Modular Homes, Condominiums, Townhouses, Existing or New Construction, Rehab and Non-Conforming.
While they do not provide any lending services, they can make available local mortgage professionals who are familiar with their Program. For more information about these programs you can contact the Home Downpayment Gift Foundation at 1-888-856-4600 or visit their website at www.homedownpayment.org.
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