Will Seller Funded Down Payment assistance return for Bay Area Homebuyers?

Down Payment Assistance has been a hot topic among home buyers and now law makers. In new legislation HR600 law makers are proposing a bill that would bring back seller funded down payment assistance to be combined with such programs like FHA financing. Highlighted below is some great information off of FHALoanPros.com

The “FHA Seller-Financed Down payment Reform Act of 2009?, HR600 says that borrowers must have certain credit scores – at least 620 in one situation and as much as 680 in others.

The bill also says that beginning in fiscal year 2010 – a period that starts October 1st – assistance may be allowed if the borrower “has a credit score equivalent to a FICO score of 619 or less, but only if the Secretary certifies that such loans can be insured without resulting in a need for an appropriation for a credit subsidy.”

Translation: HUD is going to have to keep careful records showing default rates for loans which were originated with down payment assistance. Too many defaults will limit assistance to those with credit scores of 620 or better – and ban them for buyers with weaker credit.

The bill also has new requirements for nonprofit organizations that provide down payment assistance. Typically such organizations get a fee, say $500, for their work as an intermediary and counselor. In a common transaction, for example, a seller would make a contribution to the nonprofit equal to 3 percent of the property’s purchase price. The nonprofit would then provide the money to the buyer. In addition, the seller would usually chip in $500.

The necessity for a third party arises from a HUD rule which says sellers cannot provide down payment dollars to buyers. Sellers, however, CAN provide so-called “seller contributions” equal to as much as 6 percent of the sale price. HUD rules also allow for down payment gifts to buyers from families and friends, great news for those who have wealthy parents…but not so good for many buyers.

Will this bill pass? The odds are good given that Congress has repeatedly objected to HUD’s DPA policies during the past few years.

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