Down payment assistance program

[Anonymous]

Hi Everyone! I'm currently house hunting and have a pre-approval for FHA. My lender mentioned the possibility to use a down payment assistance program that would result in me financing the down payment and it's essentially be a "mini-mortgage" with like a 1% interest rate. I have the cash to put down for a down payment, but it would cut my savings in half and I need to furnish the entire house (myself and 4 kids) and will have other expenses with cleaning, possibly painting, etc.. I would prefer to use the down payment assistance so I don't have to shell out $10,000 and can use some of that for furniture, household essentials, painting, etc. HOWEVER- my agent told me those programs can work against me in today's market. I don't quite understand. I'm going to talk to my lender more about it but do sellers know or care where you're getting your down payment funds from?

[babygirl1256]

Greetings Kellyd4 ~ Congrats on your FHA pre-approval. I don't think a seller would mind if you qualified and obtained assistance via a "down payment assistance program" as long as the "sometimes strict" requirements are met and the funds are awarded and closing isn't delayed. 

[Michizane]

Not sure about the rates or downpayment program you are mentioning, because it varies by the city/state. In Minnesota, the downpayment assistance "loan" that they offer is at the same interest rate as your mortgage and is a 10 year loan and is capped at $15K (or you have to pay it off before you sell the house). 

Does it work against you? That will really depend on the specific house you are trying to buy. A seller/listing agent that has a lot of offers might deprioritize your offer since you are FHA and using some kind of assistance based of assumptions, past experiences working with buyers on those programs, etc. In your contract, you normally have to outline your funding...including any downpayment programs. The seller/listing agent might have had an experience where a buyer on assistance programs was not able to get the grant/loan in time (or not at all) or for whatever reason, and it might influence their decision. The other thing to be aware of is that the seller has no idea what your financial background is, so they might make assumptions on you as a buyer since you are using FHA, and on an assistance program. That means they can assume you have bad credit and are broke (i.e. irresponsible and living beyond their means...this is an assumption they can make). So they might show preferential treatment to a conventional buyer who has their closing costs all in cash. 

All that said, I honestly think that FHA will "hurt" you in a seller's market more than using one of those downpayment assistance loans/programs. However, if a specific house has no other options, they will probably jump on your offer if it is reasonable. 

[203bravo]

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@Michizane wrote:

Does it work against you? That will really depend on the specific house you are trying to buy. A seller/listing agent that has a lot of offers might deprioritize your offer since you are FHA and using some kind of assistance based of assumptions, past experiences working with buyers on those programs, etc. In your contract, you normally have to outline your funding...including any downpayment programs. The seller/listing agent might have had an experience where a buyer on assistance programs was not able to get the grant/loan in time (or not at all) or for whatever reason, and it might influence their decision. 

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This exactly.. 

[Anonymous]

In this state, WA, I never put anything in my contract that I wrote as realtor about down payment assistance. I only put it as an FHA loan with whatever percentage it works out to be. I have won 3 bids in the last month with this loan type. 

[Wog1224]

I recently got an offer accepted with FHA. I didn't use DPA but I honestly don't think the seller is made aware of that. I think you'll be fine with FHA. The downside to FHA is the PMI and the

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@Anonymous wrote:

In this state, WA, I never put anything in my contract that I wrote as realtor about down payment assistance. I only put it as an FHA loan with whatever percentage it works out to be. I have won 3 bids in the last month with this loan type. 

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lower down payment. 

[Anonymous]

In Texas, we have down payment assistance that is a true grant, as well as a 3-year lien that is eventually forgiven. I close next week using the DPA here in Texas and I made zero reference to it in my offer and contract. I also was able to keep the standard 30 day close. The only difference was my rate was higher due to the fixed rates these programs use.

[JGGM]

There's some truth to what your agent is telling you, especially in a seller's market. It's all about presenting the best overall offer to a seller. I'll give you a very recent and real example:

I just sold my house last month. It was on the market for 12 hours. In 12 hours, we had 17 showings, and three offers. The highest offer was using a first time buyer down payment assistance fund. I was worried that the home might not appraise, and if any other expense came up the buyer would not be able to cover it. I also worried about repairs an FHA appraiser might require. I ended up accepting an offer that was $5k less than the highest offer, because the person was putting down 20% on a conventional loan. In the end, it wasn't the highest overall offer that won, it was the best overall offer for me, as a seller, that won.

On that note, I will say I do feel bad for first time buyers in this market. It's nuts. When I bought my first house, it was the exact opposite during the 2008 mortgage crisis. Buyers got to call the shots.

[chijo]

I think a lot depends on the area and if the parties are used to working with such programs. But rest assured these bubbles in most areas are about to burst. Buyers may have the upper hand sooner than some think. Watching the usual economic indicators show the bubble's walls are thin. Again.

[FalconSteve]

Sellers do not care as long as they are paid