Local Real Estate Comments and Ramblings

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Down payments, taxes, and the Housing reform bill

A lot has been said here on Active Rain and many other places about the elimination of seller funded Down Payment assistance programs and many other "reforms" coming out of the housing reform bill.

OK, maybe I'm a little slow and just now figuring this out, but I went to public school so maybe I have an excuse :-).

With the legislation as it is effective Oct 1 the seller a private individual cannot contribute to the buyers down payment.  However there a multitude of local and state grant programs that will give the buyers a down payment.  The big one around here is called "Georgia Dream" but there are also many others.  The new legislation also gives a $7500 tax credit for buyers. The bond money and tax credit is funded by us!

THE GOVERNMENT SAYS ITS OK TO GIVE AWAY OUR TAX DOLLARS FOR DOWN PAYMENTS!

People are still buying homes for little or no down payment with money that belongs to you, me, and every other citizen but they won't allow people to do the same thing through a private transaction?  Don't get me wrong, I think the state grant programs are outstanding programs for home buyers and I freely recommend them. I like to use whatever tools are available to help people buy or sell a home.

Am I missing something?

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Comment balloon 6 commentsBob Southard • August 14 2008 09:19AM

Comments

You may be missing something.  The government granted downs do not affect the value of the home in any way.  In other words if you buy a home for $250,000 and the government gives you 6% towards your down, the loan is on the $250,000 that the home appraised for.  Historically though mortage brokers would hide the 6% from the appraisers (and even the local mls).  So now the bank is lending on a home that appraised for $250,000 that is really only worth $238,000.  The buyer is actually making a mortgage oayment on the down payment.  This puts a buyer upside down the minute they close escrow.  Because part of the value was really the down payment.  Make sense?

Posted by Betsy Duncan over 10 years ago

Betsy,

Thanks for the comment.  I am aware of the "circular" nature of the DPA programs.  But with the either program the house still has to appraise. I guess maybe you can raise the question of loan to value since the dpa programs are often added to price.  However, on most of my recent deals the buyer asked to seller to pay the dpa outright without building back in to the sales price.  Really the the ltv question is one to put on the appraiser. Is the house worth enough to do a 97% loan?  I think my basic point is still the same why are tax dollars ok but not private dollars?

Posted by Bob Southard, e-Pro - Cobb, Cherokee, North Fulton (Atlas Realty Service, LLC) over 10 years ago

Betsy, you are only half right.  I do not know of my appraisers that will just toss a value to cover it.  There is such a thing as appraisal reviews.  If the home is priced right to begin with then there should not be an issue.  So, i guess it is ok for us to take 300,000 home buyers out of the mix.  No one seemed to have an issue with this a couple years ago and not we do?

more band-aids for the huge gaping wound over there, go for the easy fix and not fix the major problems, just tossing money at something does not fix it.

Dave

Posted by Dave Woodson, Not the Average Agent (Dave Woodson) over 10 years ago

You make a good point in that it is deemed o.k. for us as taxpayers to foot the bill, but not for it to be done by the private parties in the transaction.  The trend, if you haven't noticed, is going to be for more and more government control of the whole process.  Part of the bill gives more "oversight" to the government of Fannie and Freddie.  This means in reality that not only will have control of the FHA process but conventional as well.  We all need to get used to using the government dpa programs as they will be the only ones left.  In your area Cobb Housing, Inc. handles the dpa program for Cobb and Cherokee.  I am very familiar with them, if you are not I can give you contact information.

All of our jobs are changing fairly radically and we need to be as much ahead of the curve as possible.  If I can of help in anyway please let me know!

Posted by Merlin Pearson (Brand Mortgage Group) over 10 years ago

Interesting!  I am currently selling my house as a FSBO priced under the recent comps for my neighborhood as have some equity and family looking to re-locate within ext 6-months and we just want to sell.  We have a young couple whom are interested & currently attempting to get pre-approved.  They are true first time homebuyers so have informed them that they have many options - from FHA, GA Dream Home Program etc - of which they can get DP assistance etc.  I recommended the GA Dream program and gave them the info to follow up on along with some other mortgage date - I just want them to take that step themselves but willing to help as due to being young & new to real estate don't want them to feel overwhelmed as even though will be a starter home is a big step for their family - just do not want them to use someone b/c I recommended.  Guess my question is - Would this effect scenario where we added into the selling price the Closing costs / DP if I was to give them cash back at closing etc?

Bob - When you get a chance please contact me as have some questions about searching for homes in Dallas, Hiram, Douglasvile & West West Cobb.

 

Thanks!

Posted by Jamey Henslee (CT Homebuyers) over 10 years ago

Hi Jamey,

Thanks for the comment.

These are all great programs that do not require any seller contribution so they work quite well for you as a seller.

As long as the house will appraise it shouldn't be a problem to add on the closing costs.  I don't think that as a seller you can rebate any money to the buyer. If you try to do that and disclose it , it will probably be turned down by the lender.  If you don't disclose it and just write them a chack after closing you are looking at potential loan fraud since it was not disclosed.

I would just try to structure the sale so they can buyer for little or no down payment using Down payment assistance while it is still available or use one of the grant programs and leave it at that.

From a sales standpoint, simply giving them the contact info for Georgia Dream, etc probably is not enough.  They'll drag their feet, find another house, change their mind, or who knows what.

There are probably 2 ways to handle it and try to get them locked in.  1: refer them to a lender and get them started on the loan process or 2: get them under contract with earnest money.

I'll give you a call about your home search.

Posted by Bob Southard, e-Pro - Cobb, Cherokee, North Fulton (Atlas Realty Service, LLC) over 10 years ago

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