Can someone still buy a home with nothing down?
Yes.Just last week the Supreme Court overruled the US Department of Housing and Urban Development’s (HUD) decision from October 2007 making it illegal for home buyers to participate with any type of down payment assistance provided by the seller. More info here.
What does this mean to potential home buyers?
It means that if you can qualify for a mortgage, you still have options available where you may be able to bring no money to the closing table.
A simple, high-level overview to how some down payment assistance programs work:
1.) Borrower must qualify for a loan that accepts a gifted down payment, such as an FHA loan.
2.) The loan limits must be verified based on the county the property is located in. (Verify limits here.)
3.) The seller pays the “gift” amount (anywhere from 1% to 10% of the contract sales price, depending on the maximum gift amount allowed by the lender) plus a processing fee (fees vary from one DPA program to the next, but most either charge a flat fee such as $395 or $500 maximum processing fee or some charge a flat percentage, such as .75% of the contract sales amount.) to the non-profit organization classified as a 501(c)(3).
Some might say, "what’s the catch"?
The ironic part is since the Supreme Court overruled HUD banning this type of program, there really isn’t a catch. Of course the seller has to have enough equity that it makes “financially sense” to basically donate a gift to the non-profit organization. The non-profit organization cannot use the funds received from the seller to give the downpayment assistance gift to the buyer. The non-profit organization must use their previously established funds so it is important to work with a reputable downpayment assistance program.
Remember, a borrower who participates in a down payment assistance program doesn’t have to repay the “gift” so it truly is a unique opportunity to help more individuals become homeowners.
