HUD’s Final Rule
Well it has finally come to pass! The long allowed seller assisted down payment program many have used to buy their homes is being ruled out by HUD starting October 31, 2007 as the final rule. While many of you may have used this to buy or even help sell your home it has now been ruled by HUD that the results of this activity were the results of raising home prices on the sale of a home to meet the net proceeds a seller wanted to obtain.
To first understand this we have to take a step back and understand how the program worked. In simple terms, if you were selling your home and had it listed at $200,000, you might currently expect and already have factored into that price 3% for seller assisted closing costs given the state of our market being a buyers market with all of the homes available. So, the day comes when you receive an offer that is $200,000 however, they also ask for you to participate and contribute an additional 3% to a seller assisted down payment program. NOW, the questioning begins! Do I take that offer, can I sell for the additional 3% reduction in my price? Or do I counter back with an offer at $206,000 and effectively raise the price of my house????
This has been the longstanding argument between lenders, real estate agents, buyers, sellers, and appraisers. One thing to understand is that any proceed given or seller paid closing costs actually reduces the true sales price of a home because you didn’t actually receive that amount. For example, if I buy a car at $39,900 but they offer me $2,000 cash back did I pay $39,900 or $37,900? Henceforth the argument on sales prices of homes.
HUD has determined that the net effect is that housing prices have been inflated to meet this type of program, and the seller’s net proceeds haven’t diminished. Although we can go on and on about the differences, and how a great real estate agent is going to have negotiated down the price accordingly to get the better deal. HUD has the final rule!
My opinion is that I see both sides of the fence. Having been involved in well over 100-200 of these types of home purchases transactions myself I can say it has been a huge help for people who otherwise may not have qualified for a home loan. If you don’t have the 3% down payment requirement you wouldn’t be able to buy. Also, what if it was to drain all of your savings to use this money as a down payment? We work strongly with our compadres in real estate to NEVER add to the offer but rather negotiate because that is one beautiful fact about buying a home in the U.S., you can!
Yes there are alternatives! The current foreclosure mess is built off one of them. That is the infamous 80/20 no money down, get a low, interest only loan. Then in 2 years when I am forced to refinance my credit better be tip top, and my house better have appreciated. We are talking to people on a daily basis who are in trouble because of this type of loan. Do you think they would be if they got 3% seller assisted down payment and a nice 30 year fixed rate with no pre payment penalty?
The one caveat to HUD’s final rule is they have a preexisting settlement with Neiamiah that will allow them to continue the program they offer until March 31, 2008 and then it will cease operations as well.
The new mortgage market is full of changes and new rules. Make sure you are working with someone who is going to understand the new rules and they they impact your ability to buy or refinance your home. It is more important then ever to work with an educated professional in the mortgage market. After all, would you rather be facing foreclosure because you sought out the lowest rate and received no education and no follow up?
Call me (303) 779-0591×2 or email ~ Ray
