Down Payment Gifts Builder & Remodelor, August 2003 By Michele Francis

Down payment gift and other assistance programs provide a huge opportunity to help people become homeowners. They are great vehicles for people to be able to purchase homes with very little of their own money. An estimated 200,000 low and moderate income families obtain mortgages each year using down payment gift programs, according to officials at one such program, Neighborhood Gold.

There are a number of nonprofit organizations that provide down payment assistance. Some function nationwide, while others are regional. The monies provided are gifts or grants that do not have to be repaid. They do not involve second liens or second mortgages.
HUD also has its own down payment assistance program, the American Down Payment Program. However, this program is no where near the level of assistance that the nonprofit organizations are able to offer.

The way in which the nonprofit programs typically work is that a person who lacks a down payment can qualify for a mortgage by providing for a down payment gift. The seller agrees to contribute a down payment and processing fee. The down payment provider advances the funds (at closing) to the settlement agent so the property can close and after the closing the down payment provider is reimbursed and the funds are returned to the pool that is used for down payment assistance and the homebuyer is then in the house.

It is estimated that about 20 percent of all FHA insure mortgages, approximately 17,000 per month, are made using the down payment assistance programs. In addition, both Fannie Mae and Freddie Mac will purchase such loans in the secondary market.

Fannie Mae’s Flexible 100 requires no down payment, only a 3 percent contribution to closing costs, with that 3 percent coming from any source, including gifts. Similarly, Fannie Mae’s Flexible 97 requires a 3 percent down payment, in addition to a 3 percent contribution to closing costs with funds for both coming from any source, including gifts.

Freddie Mac has five programs that permit the use of gifts. Affordable Gold 97 permits gifts for closing costs only; Alt 97 and Affordable Gold 5, gifts for closing costs and all of the down payment; and Affordable Gold 3/2 and Community Gold, both 5 percent down payment programs, with two –fifths or three-fifths respectively coming from gifts.

A growing number of lenders are working with these programs. In May, Washington Mutual announced that it has approved the use of down payment gifts from Neighborhood Gold’s The Buyers Fund assistance program for the FHA and VA mortgages it originates.

The following are just a few of the nonprofit organizations which offer these assistance programs; Consumer Debt Solutions Inc. www.cdsgrants.com Highland, NY; National Home Foundation www.nationalhomefoundation.org, Potomac, MD; Nehemiah Program www.getdownpayment.com, Sacramento, Cal.; and Neighborhood Gold www.thebuyersfund.com, Fort Myers, Fla.

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