There is a deep, fundamental, unavoidable economic problem with any form of down payment assistance where the funds for the down payment come from the seller in any way, shape, or form whether directly or indirectly: such purchases are much more likely to go into default down the road. No matter what the parties say, no matter what the parties intend, seller-funded DPA has severe economic flaws that cannot be wished away.
There are several reasons for this, but the main issues are:
1. The ability of the buyer to bring substantial cash is a demonstration of the buyer's resources; seller-funded DPA is an attempt to evade lender requirements that exist for a reason.
2. The buyer who brings hard equity to a transaction is less likely to be upside-down should the price drop
3. Any transfer of funds from seller to buyer is a distortion of the arms-length relationship between the parties that is fundamental for the stated sale price to represent a genuine market price; in most cases the seller attempts to pad the price by the percentage of the DPA, so the price of record does not represent a genuine market price. In the absence of seller-funded DPA, the buyer has a strong incentive to keep the purchase price as low as possible while the seller has a strong incentive to keep the purchase price as high as possible. The outcome of negotiations between such a buyer and such a seller is the best possible measure of true market price available; the entire purpose of markets is to establish valid prices through transparency. But if DPA is coming from the seller to the buyer, the arms-length relationship no longer exists and the incentive for the buyer to bargain hard on the price is weakened due to the DPA.
A purchase transaction including seller-funded DPA is a pig. Lipstick on a pig does not change it into something other than a pig. Lenders do not like the risk of seller-funded DPA, and attempting to prevent a lender from learning that DPA was provided by the seller may well constitute mortgage fraud. A padded "price" in conjunction with a "down payment" from the seller creates an illusion of equity that does not really exist.
There have been successful DPA programs that are funded from sources other than the seller, and these work better because a DPA provider without any economic relationship to the seller has a vastly stronger incentive to ensure that (1) the buyer can afford the purchase and (2) the buyer does not overpay.
TU 791 02/11/2013, EQ 800 1/29/2011 , EX Plus FAKO 812, EX Vantage Score 955 3/19/2010 wife's EQ 9/23/2009 803
EX always was my highest when we could pull all three
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