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At times there are potential home buyers who are able to afford a house payment with no difficulty but they can't buy a house because they don't have the the lump sum necessary for the down payment and closing costs. The solution to this problem is a down payment assistance program, also called a down payment grant program. Before looking at how a Down Payment Gift Assistance Program works we need a little bit of background information. At closing the home seller can help the buyer pay for closing costs by giving a portion of their proceeds back to the buyer. The amount allowed depends on the type of loan the buyer is using. Normally sellers are not allowed to give home buyers down payment funds and that is where gift assistance programs step in, providing a "work around". The seller enrolls the house into a suitable program and contributes an amount equal to the assistance the buyer is going to receive at closing, plus a fee. Usually the fee is around 0.75% of the home's sales price. When the transaction closes, the down payment funds are wired from the gift assistance program to the closing agent. The seller has no part in the transfer of funds. The Department of Housing and Urban Development (HUD) does not issue formal approvals for these gift programs; it puts the burden of working with a legitimate program on the lender. All the major programs appear to comply with HUD's requirements. The lender will have to verify that the chosen program is one that is acceptable. Gift Assistance Program guidelines may differ slightly, but they all offer the necessary components. Here are some of the basics: - Home buyers must qualify for a loan that allows gift funds. - There are no minimum or maximum income requirements for buyers, but there may be top limits set on the sales price of homes. - Typical assistance seems to range from 1% to 7%. - Funds can be used for the down payment and for closing costs. - Gift funds can be used for new or existing homes. - Unused funds must be returned to the gift program. - Assistance programs cannot be used to refinance a house or to make home improvements. - Sellers cannot use the gift as a charitable contribution, but it may be deductible as a selling expense. Talk to a tax professional. Let's now take a look at why the seller would want to participate to a Down Payment Assistance Program. What matters to a seller is the bottom line, how much money he takes away from the closing table. Since this is their concern from the get going usually the selling price includes some negotiation space. A buyer who has the funds to close may get a better deal on the house, while the buyer who needs help will pay closer to (or more than) the asking price, but in return he will be able to negotiate help from the seller. Keep in mind that the lender will not allow gift funds that result in a loan that exceeds the appraised value of the property. If you're working with a real estate agent, he or she can help you determine if the property is realistically priced and will appraise where it should. Your lender can help you choose a down payment assistance program. Ask them to show you how your offer to purchase should be worded to ensure compliance with their guidelines.
Article Source: http://www.europe-property.org/articles
The author is the editor of two websites covering all aspects of Home Mortgage Loans. To find resources and detailed information on the full range of home mortgage loans available visit www.MortgageLoanHome.info.
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