|The highest hurdle in owning a home is saving for the down payment and closing costs.
And brokers, not just families, can benefit from the many down payment assistance programs that help clear that roadblock.
Cooperating with a program profits brokers because it "expands their pool of qualified homeowners and allows them to close more transactions," said Scott Syphax, president and CEO of the Nehemiah Program, a faith-based non-profit housing organization. "It's additional business for them and helps grow their business. Everybody wins."
Many families qualify for a mortgage, but have a hard time saving for the down payment -- the difference between being a renter and an owner. Non-profit down payment assistance programs give these families a percentage of the purchase amount to use for the down payment.
In addition to the Nehemiah Program, another example is the non-profit AmeriDream Charity, Inc., which runs the AmeriDream Advantage Program out of Gaithersburg, Md.
The AmeriDream program provides down payment and closing cost funds from a pool of money that acts like a circle. The funds are a gift to the borrower and not repaid.
The process starts when a lender contacts AmeriDream about a borrower who qualifies for a mortgage but has little or no money for a down payment. If the borrower has not singled out a home for purchase that is enrolled in the AmeriDream program, the seller or builder of the home must agree to enroll the home.
The lender determines how much the borrower needs, anywhere from 2-5% of the purchase price. The borrower fills out a gift application and the lender submits it to AmeriDream at least 24 hours prior to closing. AmeriDream then wires the funds directly to the settlement agent's escrow account the day before settlement.
Borrowers can combine the gift with an amount they've saved, or have no money to put down at all. The gifts are never given directly to borrowers, and they must remit the gift to AmeriDream if the home doesn't close. The funds, however, can be used toward closing costs.
Upon settlement, the seller pays AmeriDream a service fee equal to the down payment gift plus .75%. The fee goes back into the pool to help other borrowers.
Borrowers can use any conventional loan program, as long as it allows the use of gift funds. There are no income restrictions, but there is a purchase price cap: $300,700 for a single-family property and $578,150 for a multi-family.
AmeriDream has assisted about 88,000 borrowers with down payments since the program was established in 1999, said Christine Partain, vice president of the down payment program.
The Nehemiah Program essentially works in the same manner as AmeriDream, but the pool is made up of both donations and service fees. The service fee paid after closing can be split up among the borrower, lender, and seller, but is usually paid by the seller, Phax said. Homebuyers request between 1-6% of the purchase price when they fill out an application, which is then reviewed for approval.
The California-based program has served almost 130,000 families since 1997, and a typical down payment amount is 3%, Phax said.
In 2000 and 2001, the Association of Community Organizations for Reform Now (ACORN) lobbied New York City to institute a $10 million down payment assistance program, to no avail, said Don Baylor, ACORN legislative director. The city has a notoriously low home ownership rate -- 30% compared with the national rate of 67%.
Other municipalities, such as Los Angeles and Washington, D.C., have such programs in place, he said. In order to make sure some borrowers don't abuse the program, the cities have residency requirements, such as having to pay back a percentage of the down payment if borrowers sell their home in under ten years.
These programs work in getting people into homes, Baylor said, because research shows that putting down a lump sum payment up front is the biggest obstacle to home ownership.
"It's not the monthly mortgage payment that people have problems with," he said.
Of course the borrower benefits from these programs, but what about everyone else? When sellers participate in the program, their home opens up to a larger pool of serious buyers. Their homes sell faster than usual, allowing sellers a greater chance at maintaining the original asking price.
And in addition to the increased origination, down payment assistance programs benefit brokers by helping families and individuals achieve their dream, Phax said.