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Frequently Asked Questions
Q: I understand that some Down Payment Assistance Providers (DPA) offer an exclusive Mortgage Payment Protection Plan. How much does that cost?
A: With most DPA’s there is no cost for the first year of this significant protection benefit. This payment protection plan protects both the home buyer and the lender, ensuring that mortgage payments for at least six months will be made to the lender if the primary borrower involuntarily loses his or her job during the first year of the loan. An optional second year of coverage can be included by adding $200 to the seller's service fee. This as an incredible 50-95% off regular renewal rates.
Q: Can this program be used on any loan?
A: Any FHA, Conventional, or Sub-Prime loan that allows a gift from a nonprofit organization can use the DPA funds.
A: No. The market value of the home being purchased using our grant is substantiated by an independent appraiser. The appraiser must substantiate the value of the home based on sales of comparable properties. The price of a home cannot be higher than its appraised value.
Q: Is the seller paying for the buyer's down payment?
A: No. These types of grants come from an existing pool of funds operated by the non-profit organization. After closing, the seller pays a service fee that replenishes the fund for the next buyer. Another way to look at this process is, when the seller pays the service fee, the money is simply wired to the next family waiting in line for their down payment grant.
Q: Are you FHA-approved?
A: FHA does not approve any down payment grant programs; it is the responsibility of lenders to ensure that down payment assistance programs meet official guidelines. In HUD Mortgagee Letter 00-8, dated March 3, 2000, signed by William C. Apgar, Assistant Secretary for Housing-Federal Housing Commissioner, it states: "There has been widespread confusion regarding the Department's role in approving down payment assistance programs in the form of gifts. FHA does not approve down payment assistance programs in the form of gifts administered by charitable organizations. Mortgage lenders are responsible for assuring that the gift to the home buyer from the charitable organization meets the instructions described in HUD Handbook 4155.1, REV-4, Change 1 (e.g. no repayment implied etc.). Thus, while FHA will issue approval letters to nonprofit agencies for their participation as mortgagors, providers of secondary financing and as purchasers of HUD homes at a discount, such letters are not to be construed as approval of the nonprofit agency's down payment assistance gift programs. FHA will not issue approval letters for down payment assistance gift programs."
Q: Are there any income limitations for potential homeowners?
A: There are no income limits. If a buyer is approved for a loan, he or she can receive the grant funds, regardless of income level.
Q: Is the seller service fee a sales concession?
A: No. Many sellers consider this program an extremely effective way to increase the pool of potential buyers for their home and to sell their home faster. Additionally, neither FHA nor Conventional organizations considers it a sales concession. FHA allows 6 percent of the sales price still to pay for closing costs, prepaids, and 2-1 buydowns. Conventional allows the seller to pay 3 percent of the sales price towards closing costs and/or 2-1 buydown.
Q: Is there a maximum grant amount allowed?
A: No. The only limit is the appraised value of the home. If buyers are trying to obtain a larger grant, they may need to find a distressed home in order to give the seller sufficient room to pay the service fee. If the grant amount is above $10,000, the fee is 10 percent of the grant amount plus the grant. For example, in the case of a $15,000 grant, the service fee is $1,500 + $15,000 = $16,500.
Q: If the home buyer does not qualify for Mortgage Payment Protection, can the home buyer still receive a grant?
A: Absolutely. The Mortgage Payment Protection is a benefit but is not a required part of the grant application.
Q: Are these types of grants tax deductible?
A: There are two tax deductions to consider: a deduction against capital gains and a charitable deduction. This grant can be a deduction against capital gains. Capital gains are taxed on a primary residence if the gain is 500k or more. Capital gains are always taxed against investment properties. The fee to the seller will reduce the capital gain, as does a fee to a realtor or title company. If a taxable capital gain occurs with the sale of an investment property, then our fee can be deducted as a cost of sale, in the same manner as a Realtor commission or closing costs are. The seller service fee does not qualify for a charitable contribution because the seller is receiving a service in return for the donation, and under IRS rules, the donor may not receive service or goods in return. However, we would encourage you to verify any tax-related questions or concerns with your tax professional.
Q: Are these non-profits nationwide companies?
A: Most of the DPA’s can do business in all 50 states. We feel that it is important that the home buyer use a DPA that is accepted nationwide. This will ensure that they are approved by the major lenders.
Q: Who has to complete the application?
A: The loan officer completes the application and submits it to the DPA, for approval. Once approved, a gift letter confirming approval of the funds is sent from DPA, to the lender. Home builders, home buyers, or sellers who are interested in participating in the program should work closely with their loan officers to take full advantage of this program.
Q: What are the fees involved?
A: The only fee involved is a service fee paid by the seller. This fee is the grant amount (which can be anywhere from 3-10 percent of the sales price), plus a percent of the cost of the home.
Q: Can you provide marketing materials?
A: Yes, we have several brochures available in both English and Spanish that can be used to market to realtors, builders, prospective home buyers, and others who can benefit from using our program. We are also working on additional information for both lenders and Realtors that explains the benefits of these DPA’s and their programs even more completely.
Q: Why would a seller pay a fee to the DPA?
A: Typically it can take weeks or even months to sell a home. Most sellers are anxious to sell their home, and they often reduce their price significantly and make other concessions in the process of making a sale. The DPA industry allow a seller to substantially increase the pool of potential home buyers interested in buying his or her home from the very beginning. This often means a sale will be made more quickly and, most likely, for the full sales price — all benefits that are well worth the seller participating in a DPA program.
Q: Does a buyer have to repay the funds received through the assistance program?
A: No. This is a grant, a bona fide gift that the buyer does not have to repay. The grant is given when the seller agrees to participate in the program by reimbursing the grant amount, plus a service fee, after closing.
Q: Can funds from the program be used to purchase condos, apartments, duplexes, etc.?
A: Most of the DPA’s have gifts available that can be used to purchase any property.
