Ameristar Mortgage Blog

HR 6694 may save the Down Payment Assistance program which is being cutoff October first.

A Bill that would save seller-funded downpayment assistance from being eliminated on October 1 passed the House Financial Services Committee today on a voice vote amidst strong bipartisan support. The Bill, The FHA Seller-Financed Downpayment Reform and Risk-Based Pricing Authorization Act of 2008, or H.R. 6694, is expected to move to the floor for a full vote in the coming days.

Downpayment Assistance Programs (referred to as DPAs) allow a seller to “gift” the downpayment to the borrower. There’s a charity involved, and a fee paid, and the house has to be able to appraise for the full amount. In many cases this is one of the few ways someone with a shortage of downpayment funds can afford to purchase a home.

It normally takes total funds of around 3% of the purchase price to purchase a home (downpayment). If the seller is not paying the closing costs that number can jump to 5% for downpayment plus closing costs.

Here is a sneak peak at what HR 6694 looks like now:

“In an attempt to “mend, not end” the use of seller-funded down-payment assistance, HR 6694 would tie its use to borrowers’ credit scores.

Those with credit scores of 680 or more could continue relying on seller-funded gifts for FHA-backed loans and would be treated like other borrowers. Those with scores between 620 and 680 could use the gifts, but could pay higher FHA insurance premiums. The gifts would be off-limits for borrowers with scores below 620 until at least mid-2009, when the Secretary of Housing would be permitted to expand the program if it could be done without requiring taxpayers to subsidize FHA’s insurance fund.”

Ameristar Mortgage is your Wisconsin and Illinois Mortgage Banker: