The Real Estate Encyclopedia
What Are Mortgage Assistance Programs?
Category - Mortgage Questions - Mortgage Loans FAQ's

When buyers face challenges coming up with the necessary down payment to purchase a home, especially first time home buyers, charity organizations and federal institutions are available to these buyers to assist with this problem.


Down payment assistance programs, both non-profit and federally run, help interested home buyers with procuring down payment on a home. The seller of the home assists the buyer by contributing a portion of sale proceeds to the home buyer at the time of closing. Because federal and state laws dictate that the seller cannot give the funds directly to the buyer, the assistance programs provide a work around so that the sale stays within federal guidelines.  The gift amount is determined by the type of loan that is being applied for.  When the seller enrolls the home in a down payment assistance program, they will contribute the amount the buyer needs for closing a fee will apply.  At closing, the assistance program wires the needed funds to the selling agent.  By law, the seller cannot participate in the transfer of funds.


The best source is available through the Federal Housing Authority (FHA). The FHA is a branch of the Department of Housing and Urban Development (HUD) which was created in 1965.  The prime responsibility of the FHA is to administer government home loan programs. Because the loan is insured by the FHA, the lender is protected in case of default.


The FHA also looks at debt to income ratios differently than other lenders.  The standard in the lending industry is a debt to income ratio of 28/36%, but the FHA has a standard of 29/41%.  This provides an advantage for the buyer who has less than perfect credit.


The FHA also works with people on as many loans as they wish to pursue. This does not have be a one time deal for consumers. The disadvantage of an FHA loan is that there are limitations on the size of the loan they will administer.  This should not be a disadvantage to people who are pursuing an FHA loan and are considering a less expensive home.  FHA guidelines are readily available by doing a search on the internet.


There are other organizations that administer down payment assistance programs, which are not run by the federal government.  The most popular are AmeriDream, Inc, The Nehemiah Program, and Partners in Charity.  Whenever dealing with any charity organization, which handles assistance programs, the consumer should make sure they are members of the Home Gift Providers Association (HGPA).  This watchdog organization has a list of ethics and best practice guidelines for down payment assistance programs.  Any time a buyer deals with these charitable organizations, the buyer should learn as much as possible about the program and be sure it conforms to local laws.  Also, the buyer must be aware that HUD does not approve gift programs, but leaves it up to the mortgage lender to insure that the organization you are dealing with follows HUD guidelines as listed in HUD Handbook 4155.1 REV-4, CHG-1 Paragraph 2-10(C).


The buyer must make sure that the seller has not over inflated the asking price of his home, if he has enrolled it in a mortgage assistance program.  The asking price of this home should conform to present local market values. 

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