Financing in Plano>Question Details

Uche, Home Buyer in Plano, TX

conventional loans

Asked by Uche, Plano, TX Tue Aug 12, 2008

Does conventional loans accept down payment assistant from charity such as AmeriDream ?

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HR3221 killed seller-funded DPA but its demise is scheduled for 9/30. We simply do not know at this point if that means loans must have a case number, or credit approval, or must close, or what. The safest position is to have the loan closed before 10/1/2008, but we think loans will still fly if credit approval is given prior to that date.
DPA from family, or true gifts/grants with no seller participation, government grants and the like are still permitted. (At least we believe so, until rules are promulgated.)
HR6694 is the attempt to re-authorize charitable organizations to participate in DPAs via the seller. This bill does not have a good chance of passage, though. Al Green from TX is a co-sponsor.
The difference in DPA is that until now conventional lenders usually had a 3% maximum on seller concessions, while FHA allowed up to 6%. Of course, every lender has his own rules, but Federal law will make all of these illegal except true grants and assistance from family.
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2 votes Thank Flag Link Tue Aug 12, 2008
The American Housing Rescure and Foreclosure Prevention Act of 2008 specifically bans seller-funded down payment assistance programs effective Oct 1, 2008.

There is legislation just introduced into Congress to allow the seller-funded DPAs to continue. It carries a couple of powerful Senate sponsors... but HUD and FHA administrators are strongly opposed to salvaging seller-funded DPAs. I don't recall the bill number to track it.

However, down payment assistance programs from true non-profits (eg Catholic Charities USA) , state and local government, and family gifts are all acceptable alternatives to buyer savings for the statutory down payment on FHA insured mortgage loans.
1 vote Thank Flag Link Tue Aug 12, 2008
Lending answer:

As a rule of thumb, no.

Ameridream, Nehemiah, H.A.R.T. and similar entities lost their non-profit status in 2005 after an IRS examination of their business operations. So they don't count as non-profit grants such as a one received from a religious or civi group.

The reason is the source of the grant: the seller. Under Fannie Mae and Freddie Mac guidelines, a seller-funded "grant" is an inducement to the sale and cannot be counted towards the buyer's down payment requirement.

HUD was forced to accept these grants after losing a series on court arguments in 2000. At the time, Ameridream and it's competitors had non-profit status, and they took advantage of a loophole in HUD guidelines for FHA insured loans that vaguely defined "non-profit grants" as coming from entities formed under IRS rules for non-profit companies.

In 2005 the IRS revoked their non-profit status, and HUD was quick to issue a Mortgagee Letter (this is the document HUD uses to update FHA guidelines) barring Ameridream etc from participating in FHA insured transactions. The seller-funded down payment assistance companies successfully sued, and it literally took an Act of Congress (signed into law July 30 2008) to finally clean up the mess and ban seller-funded down payment companies from FHA insured transactions permanently.

There is a "Hail Mary" bill introduced into COngress to restore seller-funded down payment assistance grants to FHA insured transactions, but it faces stiff oppostion from HUD due to the outrageously high default rate on FHA-insured loans using seller-funded down payment assistance programs - the default rate is DOUBLE the default rate of loans using borrower savings, family gift, or a community grant.
1 vote Thank Flag Link Tue Aug 12, 2008
Question to all the mortgage people here-----

Aren't the down payment assistance programs going away beginning October 1st 2008? Are there any provisions to begin retroactive at this time OR are we going to lose those programs?
0 votes Thank Flag Link Tue Aug 12, 2008
I am a Dallas realtor and loan officer contact my office 972-699-9111 we can review your file and determine if you qualify for any type of down payment assistance program.
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0 votes Thank Flag Link Tue Aug 12, 2008
You will probably want to look at FHA rather than Conventional. Keep in mind that FHA is less restrictive than it once was.
Also keep in mind that many Downpayment Assistance Programs and Seller Financing programs will be going away in October unless Congress changes their mind again.
Ask your realtor to recommend a lender to help you identify which program will be best for you.
0 votes Thank Flag Link Tue Aug 12, 2008
there are many different types of conventional loans, overall a true conventional loan is just that, conventional with no straying. Your best bet is to ask Ameridream who they work in conjunction with. They have the experience and should be able to point you in the right direction right away without trial and error wasting time and money. Also try if you Have a State financing authority, Like here in NH we have New Hampshore Housing Finance Authority. You should have a state sponsored program. Good Luck
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0 votes Thank Flag Link Tue Aug 12, 2008
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