Today in America millions of first-time home buyers, minorities and other groups face difficult challenges when it comes to buying a home. The biggest obstacle is being able to come up with enough cash for a down payment. In order to purchase a home selling for $200,000 you will normally need anywhere from $6,000 to $20,000 (3% to 10%) for the down payment and closing costs and saving up that kind of money isn’t easy for the majority of Americans.
Fortunately, over the past 15 years a number of nonprofit down payment assistance organizations have sprung up to help people bridge the gap to home ownership. The AmeriDream down payment gift program, based in Gaithersburg, MD, is one of the largest of these organizations, providing home buyers with up to 10% of a home’s purchase price to cover the down payment and closing costs. This is a free gift which does not have to be repaid. To qualify you must be a low to moderate income family or individual who can qualify for a mortgage, but cannot afford the down payment and closing costs.
Recently, AmeriDream and several other down payment assistance organizations have been receiving negative criticism from the Department of Housing and Urban Development (HUD) due to a certain aspect of how these programs work. In early October 2007, HUD submitted a proposal to shut down and eliminate these programs entirely in response to its concerns that the contract sale price of the home “is often increased to ensure that the seller’s net proceeds are not diminished”.
What actually happens is the seller slightly raises the home’s price and then “gifts” part of the purchase price back to the buyer to cover the down payment and closing costs. AmeriDream acts as a middle man in the transaction… The seller makes a charitable donation to Ameridream, who then grants that donation to the buyer along with other funds raised by AmeriDream in the form of a down payment gift. In effect, the buyer accomplishes their goal and gets into a new home with no money down, but pays slightly more for the home and essentially finances 100% of the selling price.
According to an official court document, “Plaintiff AmeriDream, Incorporated filed this action on October 1, 2007 seeking judicial review of a recently issued Final Rule promulgated by the Department of Housing and Urban Development (HUD), Standards for Mortgagor’s Investment in Mortgaged Property.”
“…on October 9 and 10, 2007 [AmeriDream] filed motions for temporary restraining order and preliminary injunction seeking to enjoin HUD from enforcing the Final Rule during the pendency of this action…”
Our opinion on this matter is that free will on the buyer’s part plays a significant role… As long as the home buyer is completely aware of the selling price of the home and they agree with the repayment schedule of their mortgage, then having the option to use a down payment assistance program is an excellent thing. Instead of eliminating these programs, HUD should simply monitor operating activities and make sure these organizations continue to do business ethically. When a low or moderate income family wants to buy a home and can’t do it because they don’t have cash for a down payment – if they can somehow pull it off it means “mission accomplished”. Consumers should have the option to make decisions and utilize whatever services and resources are available in the marketplace.
And that’s exactly what people are doing… To put things into perspective, as of the day of this article being written, 10/29/2007, Ameridream has made it possible for 233,091 individuals and families to become home owners, which averages one new home owner every 22 minutes since AmeriDream’s launch in 1999.
In fiscal year 2006, buyers getting help from AmeriDream and other similar down payment assistance programs accounted for nearly 40% of homes purchased using Federal Housing Authority (FHA) insured or “guaranteed” mortgages. Insured home loans allow banks to be less strict about loan qualifications, such as income to debt ratio, credit score, etc. Because home buyers can combine these two programs – a down payment assistance gift from an organization like AmeriDream with a low qualification FHA insured home loan – the home buying process has become much easier.
The National Association of Homebuilders has publicly voiced its support for nonprofit organizations like AmeriDream. And the Mortgage Bankers’ Association (MBA) has gone to bat for seller-funded down-payment assistance in the past. “Down payment assistance is a key to expanding homeownership,” David Ledford, a vice president of the National Association of Homebuilders, said in a recent interview. “We think guidelines can be developed to keep [the final selling] prices down.”
Over the next few months motions and crossmotions will be filed by AmeriDream and HUD and the Court will reach a decision regarding AmeriDream’s challenge of the Final Rule made by HUD sometime no later than February 29, 2008.
Here is the contact information for AmeriDream:
200 Professional Dr. Suite 400
Gaithersburg, MD 20879
Toll Free Phone Number: 1-866-263-7437 (1-866-AMERIDREAM)
Local Phone Number: 301-977-9133
Fax Number: 301-977-9713