Countless renters became successful homeowners in the past because of two programs: FHA mortgages and down payment assistance like the Nehemiah program. The US Department of Housing and Urban Development (HUD) allowed FHA loans to be made with very small down payments (2-3%), charging borrowers insurance to cover their default risk. The program remained solvent for decades and has largely been considered a resounding success. Borrowers who couldn’t save even the tiny FHA minimum down payment could sometimes receive help through down payment assistance or community homebuyer programs, allowing them to buy a home with no down payment. And many more families became homeowners through these programs.Unfortunately, recent trends are showing that down payment assistance can have unintended results. For example, HUD discovered in a recent study that borrowers with no money of their own invested in a property are many times more likely to walk away from their homes and their mortgages than others with similar financial situations. And for the first time in its history, FHA’s insurance premiums collected from borrowers will not be enough to cover its losses from mortgage defaults–meaning perhaps a taxpayer bailout is in the future.
HUD would like to change its guidelines to prohibit down payment assistance and not allow FHA mortgages in which the buyer has not made a down payment using his / her own funds. So what does that mean to those considering a home purchase today? Urgency. If you are considering a home purchase and think you might qualify for down payment assistance you may have very little time to close that deal. So STOP reading this blog and START your online search for a lender NOW. You can thank me later when you have time.
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Gina
I have to ask myself if the reason for the higher number of defaults from people who didn’t invest anything in their homes could possible be due to the fact that they probably couldn’t afford to buy a house in the first place.
First off, if they couldn’t save anything toward the down, can they afford a mortgage payment?
Secondly, there are several costs home buyers forget about when buying a home. When you live in an apartment and you buy a home, you forget that now you have to pay water, sewer, garbage, maintenance… on top of the utilities and the mortgage payment you may not have been able to afford in the first place.
When looking at these studies, we have to consider all the variables.
According to HUD these people weren’t qualified under easier guidelines than other borrowers. They don’t appear to be any less qualified except that they may have been less motivated or disciplined — hence the lack of down payment. As an analyst for TRW (now Experian) I remember that the key determinent of creditworthiness was the borrower’s demonstrated WILLINGNESS to pay, not the ABILITY to pay. Some rich people blow off their creditors,some poor people take second jobs and honor their obligations. It does seem as though people get a lot less “willing” to pay though when they lose nothing by refusing to do so. In some states it can take a lender a year to throw out a non-paying borrower. So buy a home with nothing down, live there for free for a year, then walk away. A cool deal for those who already have nothing to lose. Too bad they are messing it up for others who deserve the help and would make good use of it.
It is too bad that they are ruining it for others. You would think there would be some pride in ownership. Gotta wonder.
How do you start the procedure to get an FHA? Where do you go for down payment assistance? Is it broken down by county?
Down payment assistance or community homebuyer programs are locally administered generally (although the USDA does oversee some in rural areas). I would check first with my county or city housing authority. A good real estate agent will also know about local assistance options. Lenders that do FHA loans can walk you through the whole FHA loan process. You can compare rates and programs online, speak to loan agents, etc. When you find one who knows FHA and can answer your questions you can get started.